Office real estate: Short-term leases will be ‘the norm, not the exception,’ Cadre CEO says

Cadre Founder & CEO Ryan Williams joins Yahoo Finance Live to discuss commercial real estate trends and the state of real estate post-pandemic.

Video transcript

AKIKO FUJITA: Real estate disruption, a CEO is aiming to change the game in commercial real estate, investing as home construction unexpectedly jumps to the fastest pace since 2006. Joining us to discuss is Cadre founder and CEO, Ryan Williams. And Ryan, it's good to talk to you today. We've been talking so much about this push that-- for single family homes. Obviously, the rates going up. A lot of Americans still looking to buy, but feeling priced out as well. What are you seeing on the commercial side?

RYAN WILLIAMS: On the commercial side, we're seeing really a tale of two sort of stories here. First tale is there's a ton of growth and unprecedented growth in some sectors, like multifamily, like industrial, like life sciences and suburban offices. And the other tale is that there are sectors that are facing incredible headwinds, that even pre-pandemic, were falling knives, in many ways. You think about retail, you think about business oriented hotel.

And the kind that we're focused on is giving individuals access to the winning asset classes and the winning markets, given it is so expensive to buy a home today and given so many people are being priced out the American dream. And so that's the focus of the business, is to democratize access to the best performing commercial real estate assets that have been so unattainable for so long for so many.

BRIAN CHEUNG: So, Ryan, what are the hot markets right now? We know that in New York City, we're observing a lot of vacancies when it comes to these retail locations or offices that can't fill desks. Is it in the big center cities? Or is it in some of these up and coming cities that you like?

RYAN WILLIAMS: Yeah, well, what I would tell you is that we develop something using our team's in-house experience and expertise, as well as data science, called the Cadre 15. It's our top 15 growth and affordable markets. And those two concepts are critical in tandem. Pre-pandemic, I would have told you that markets like Phoenix and Nashville and Dallas and Tampa, which, in many ways, were actually considered secondary markets before the pandemic, were the next hot growth oriented markets. That played out. That's where largely most of our portfolio sits today.

Now, in this post-pandemic world, we're actually focused on markets that are less saturated with capital. We've looked at markets like Ann Arbor, Michigan, for instance, near strong academic institutions, great workforce, great affordability. We've looked at markets such as Greenville, South Carolina, you know, again, located next to good academic institutions. Capital is not chasing those markets, amongst a few others as well.

But we're now focused on that next Cadre 15, where there's affordability, where people are moving from these urban centers to suburban hubs, and where there's, again, amenities that have been decentralized in many ways. And so it's a work in progress to find those next growth oriented markets, but we like to stay ahead of the curve. And it's nice to see that the markets that we've been investing in are now becoming primary capital centers for some of the biggest institutions in the space.

AKIKO FUJITA: You know, Brian mentioned some of those empty office spaces. You certainly really notice that in major cities. And I have to wonder what you think is going to fill some of those spots. I've heard you talk in the past about these developers having to be a little more creative because that workforce that was there that filled those chairs in those rooms before, it's not going to come back at the same level that we saw pre-pandemic.

RYAN WILLIAMS: That's right. Yeah, I mean, I think the name of the game is flexibility, adaptability, and quality. And what I believe will happen is, one, in New York, you'll see people utilize office space differently. I even think about our own company that I founded Cadre in terms of what we're going to be doing. And we're relocating offices, and we're going to be more flexible about the number of days we ask folks to come in, but still recognize there are benefits to being in office.

So I think that will result in is companies looking at shorter term leases. You know, I heard the previous segment about WeWork and the adaptability and flexibility that model offers. And that's going to have to be the norm, not the exception. And I think it's going to give tenants a lot more leverage. I also think you'll see some offices reposition to sectors like life sciences, right? For instance, we acquired an office asset outside of DC. It was three class A office buildings, converted it to life sciences, repurposed it with lab space. It'll be an amazing investment for our platform customers.

But I also think that you'll see that kind of conversion play. Some office, maybe you can convert it to residential because multifamily is one of the hottest growing sectors. So I think you'll either see the landlords that are willing to adapt the spaces win more tenants. Or you'll see landlords and say, you know what? The opportunity cost is too high. I want to sell this to the next buyer who's going to convert this to one of the asset classes I just mentioned.