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Have you ever wondered how the decisions to invest in building and property tech for commercial real estate are made?

Are you curious how COVID-19 is going to affect investment and growth in the CRE market? 

Are you wondering how CRE assets are valued and how portfolio managers create and execute their prop-tech strategies? 

If so this episode is for you!

In this episode, we are discussing all things CRE with expert Maureen Ehrenberg!

Click here to download or listen to this episode now.

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Show notes

Phil Zito 0:00
This is the smart buildings Academy podcast with Phil Zito Episode 240. Hey folks, Phil Zito here and welcome to Episode 240 of the smart buildings Academy podcast. And in this episode we are going to be talking with Marina ehrenburg. And she is going to be taking us through the current state of commercial real estate, how commercial real estate is procured how people make valuation decisions, and how people elect technology. And where she sees the market trending, where she sees the area to focus as far as technology and improving the built environment. So this is a topic I've been really interested in having an expert talk on this topic, and you really can't find more of an expert than marine she's worked at, we work in an executive role at jL l in an executive role at CB re in an executive role. So suffice to say she has been around the block many many times and really understands this market. And I think it'll become readily apparent like three minutes into this podcast interview. That marine really has a deep level of wisdom and insight. And I think all of us can take some value from this podcast, because we're always selling to commercial real estate, we're always trying to position our technology into commercial real estate. But we often tend to look at it from like an energy perspective, or just meeting the intent of the specification. Marines going to bring a owner operator property manager and an investment mindset to this and she's also going to look at it at the executive level, when you start to look at some of the more sustainability aspects of technology and of commercial real estate. So what what I was kind of most surprised about as I went in interviewed marine was just how much I tend to focus on the technology. And even from a use case perspective, I'm like, Okay, I'm going to focus on the use case for tenant satisfaction. But from an investor perspective, there's a higher level thought process from a property management perspective. There's a higher level thought process that I wasn't really exposed to, and this podcast, you know, throughout my life, I've found intelligent people who have more experienced that myself and surrounded myself with them, and was able to go and gain their wisdom. So without further ado, we're gonna dive into marine and eyes interview. Like always, everything can be found at podcasts at smart buildings academy.com forward slash 240. That is podcasts, smart buildings, academy.com, forward slash 240. And make sure to pay attention all the way to the end, because marine has a special offer. She's brought to the audience around consulting and she provides consulting for the commercial real estate space, and she's been generous to create an offer for our audience. I don't take any sponsorship out of this episode. I'm not being paid for this episode. This is just something she's done out of the kindness of her heart. So I encourage you to check that out. Alright, without further ado,

Phil Zito 3:15
let's dive into the interview. Hey, folks, Phil Zito here and I am so excited to be having this interview. It's not often that we get to have people who aren't just contractors, or aren't just building owners on the podcast and in this podcast episode, we're gonna have marine Aaron Berger. And she is going to be covering a lot of things about commercial real estate valuation investment property, how she sees it expanding. And here's why it's really important you listen to this. You know, I know a lot of you out there looking at how do you go and upgrade your facilities? How do you manage your facilities? You contractors out there? Like how do you continue to deliver to the commercial real estate space being that they're having issues with tenants, and they're having cashflow concerns, what Marina has been the Global Head of real estate Strategic Services that we work so she understands that kind of I don't even know how you describe it marine but that subleasing model I guess you would say, jL L. She has been the president of integrated facility management. She's worked at CBR II, and a lot of other companies. I'm not going to spend a ton of time on her background. Suffice to say she's the real deal. I remember going up to my wife after talking with her in the pre screen. I was like, holy crap, this is a smart woman. She has like so much wisdom in here. I was so excited. So we're gonna jump right into the questions. And the first thing I want to discuss is, and this is super pertinent, how is commercial real estate assets? How are they valued? How are they evaluated? Is that even the right term? How do you Go about understanding that and why does that matter?

Maureen Ehrenberg 5:04
Yeah, it's critically important. And what you have to look at is there are numerous factors fill that are actually taken into consideration. People think it's typically just the rental cash flow based on a, you know, capitalization rate. And actually the location of that property, the zoning is there potential for expansion and adaptive reuse, you can change that property to a different type of use. And if not, that, if you think you've got to get a change in zoning that could impact we think the value is, but then ultimately, what is your ability to lease going forward? Because if there's upside, perhaps there's a value based on that even if the property's empty, it's the potential ability for that to be something else. And then, of course, the physical condition. And when you look at the physical condition hasn't been maintained, Is it ready? Right for the next level, which is you talk about building automation systems, what are the conditions systems, obviously, the power sources, and then last and final supply and demand, which are so basic, is very important, because right now, we there are a lot of asset classes. There's a lot of supply and not a tremendous amount of demand out there. And vice versa.

Phil Zito 6:18
Hmm. Okay, so Wow, that could go in so many different ways. First thing I want to tackle is something that you said that was near and dear to my heart, is the assets not currently occupied, but yet there's value? Help me understand that because I guess a lot of us look at it. And they say, well, there's no one in the asset. So surely, there's not value because they don't have cash flow. But that's not necessarily the case.

Maureen Ehrenberg 6:47
No, absolutely not. Because you may be someone who is either an owner operator, so you actually have a relationship with a user that's looking to expand. And the time to build a property or find a property and construct it if there is a property that was either just recently, during the pandemic, someone chose to downsize and move out of properties, and did buyouts and there is a property ready to be occupied. So you can get much more quick occupancy in there, you can retrofit it very quickly, possibly, that is valuable. So the fact that some of these buildings do not have tenants, I have a friend who works for a company that is extremely innovative. There, they've taken co working really to the next level, which is there, if you think of like, they're like an Airbnb for office. And so for them all these empty, there are hotel chains, there are a group signing up with them, that if you need to go work in a city for the day, you can get online with their app and reserve the room for the day. So again, shared economy models also lend themselves to reusing space right now that something

Phil Zito 7:57
is interesting. Yeah, I was. I was talking with Darlene Pope the other day. And she she worked with you. And she was telling me some of the interesting things you all did about integrated space reservations. And so when you look at spaces, is it fair or sorry, assets? Is it fair to say that the building condition obviously is important, but the space use and space utilization and how the space can be utilized is also really important and the ability to use spaces and have that flexibility? How are you seeing that kind of shaped technology in the space?

Maureen Ehrenberg 8:43
Well, there's and we'll get into it in a little bit. But we're talking a lot to about occupancy patterns, because some people are changing the way they occupy their real estate and a very traditional occupancy was a big lease in a large CBD building, right in the CBD is the central business district. So people would go into a big major city take a lot of space. And in those situations over the past several years, this whole idea about reservation systems, using the space, cleaning it the way you've even scheduled work order requests, you can do so much of that using smart building technologies, even the equipment telling you what it needs to be fixed, because comforts of factor cleanliness, all of the things that make the experience either fantastic through services and elegantly changing out meeting rooms when the next group is coming in rather than a bunch of people like slamming their fist on the glass that they're up and you're still sitting in there. So to flash the lights a few minutes early, before the meeting ends to, you know, with that group now and then get those clusters. And so the building technology itself is really becoming fundamental, particularly when you've got high expectations for the experience of the users And then also the ability for the management team to create a better flow for their even the culture which the way people treat each other with respect and the way they feel that the facilities respond to their brand. And, but the shift is when you talk about these buildings, there's concern right now, for example, having gone through the pandemic and still working through return to the office, that the elevator for example, the amount of time it takes, with only a few passengers being able to get into an elevator and go up to those upper banks, what's the best way to re enter and cutting down wait times smaller, smaller buildings, suburban buildings that have stairs, that maybe have a few floors in a large footprint that have the ability to possibly, you know, knock a wallet on the first floor, put a fireplace in there create like an outdoor indoor experience, there's interest coming back and buildings that were considered obsolete, you can replace the windows with functional windows to get better airflow. So the overall look at even for the flex industrial, some of the older industrial space, which is kind of close into the urban centers, some of that had been sort of written off. And the even that products become very interesting to residential developers and even office users looking for more of a super hip look with big open spaces. And the space itself is not that expensive. So I think the idea around creativity, and technology and design all meeting each other to come up with the what is going to be a new experience, that expectation for real estate moving forward is all around us innovation and planning, which is what's occurring right now.

Phil Zito 11:46
Interesting, I'm just taking a note to come back to light industrial reinvestment. Very interesting. Um, so then that naturally makes me curious about with urban flight. You hear about it folks talk about what what is the word called? Oh, my gosh, my brain is failing me. But it's where? gentrification. So you hear about gentrification. You hear about urban flight and the main metros in New York being one of the kind of big ones that they put up there. Everyone's supposedly moving to Florida. Is that real? Is it simply being hyped? Because it's something good to talk about? Or is it somewhere in between? What are your thoughts on that?

Maureen Ehrenberg 12:32
I'm an economist. So my thoughts on that is it goes back to demand and supply. And if you think about what people have been through over the last year, and because if you think about it, it was just this time that you started to see people staying home from the office, we went into a tremendous, you know, complete sea change in mid March. But it was not unusual, actually, right now for people to stop coming in and just slow down their travel. And what's happened is over this period of time, people are feeling depending on where they're living, they're feeling lonely, they're feeling kind of excluded. And over time, things started values around family around being able to access the outdoors around trying to at least enjoy the fact that you're being remotely based, you started seeing people gravitate toward a quality of life quotient. And so what that meant was, if they could save some dollars, because they lost their job, and they could move back in with into their parents home and take the time or I know a family that they were living in downtown Chicago, they had just had a baby. And they decided to leave the condo to go stay with the parents for the past several months, and the mother could help while the woman was working, and they've decided to sell their they actually just recently sold their condo to move and buy a home closer to the parents. So there's just been a lot of change happening. But I think people want to enjoy time together. They want to take advantage also of the opportunity. If you're 100% remote, I was speaking to someone the other day, he lives in Chicago. It's freezing here right now, as you know, there's tons of snow and he thought What the heck, you know, so they rented a big house down in Florida and the whole family, including his kids are studying remotely. And he said, You know, he wasn't planning on returning until this weekend. He's been down there since Thanksgiving. So it was just an idea of the whole family getting away and working remotely and living remotely and just having a nice time. While they were all still working and going to school. I got a little tougher. I know another family that went to Europe. And the problem with that one was they were visiting parents but the time difference. The teacher couldn't understand why the kid kept showing up to class in his pajamas or sitting in bed. And finally when they asked him He said it's it's nighttime here you know, I'm I'm in Europe and the teacher was like okay, no one told me that you guys were Traveling over there, that's too far you got to get back because you're disrupting the class. But this so it's just really I believe this natural flight to quality. And once things start to get back to returning to the office determining what those companies and HR and it groups believe, is the right mix for portfolio occupancy for those jobs that some workers have said, I just want to stay remote. There's also a massive opportunity, for example, to get more diversity into your organization, because if you can accommodate a remote work base, you can start to recruit talent from a much broader pool. But on the in the end, one thing that I find very interesting about the whole idea around flight from some of these urban centers is that for the last at least five to seven years, there was a lot of prediction going out of the commercial real estate industry, that the, the millennials are going to, you know, they were getting married, they were having families, they were living in the urban centers in a very major way. And they would start to move out to these suburban locations simply because in the suburbs, while it wasn't really hip and cool to go move to the suburbs, you could buy a lot more house, you get more bedrooms, and you can start to spread out a little bit with your family, and they thought that might be enticing, given the prices, this probably has ultimately pushed some of that activity, where they've decided, Hey, you know what, I can buy a larger home, I do have a yard. And so some of that will probably be permanent. But I think the story is yet to be told, I think a lot of the Gen Z are going to go right back in to the cities, it's a great, you know, it's a great place to live. And so I do think there's some hype, but probably a lot of confusion, because there has been a dramatic shift right now on where people are choosing to live and work.

Phil Zito 16:55
So let's talk about that, and help explain kind of mixed use help explain different types of real estate assets for those who are maybe all they've ever known as they've owned and operated a commercial real estate portfolio for a company. So they haven't been exposed to mixed use. What is that? Does that have a play in people coming back into the cities? And then I'm going to want to explore technology and how that transitions as well.

Maureen Ehrenberg 17:29
Okay, well, if you think about the different product types, the tip for real estate types of only focusing, I'm gonna focus mostly just here on commercial, you've got your hotel and resort properties. The reason I bring that up is there's an interesting piece there. As we discuss what's going on about people coming back, you've got your retail malls, that are right now probably the top of the list of distressed assets. As far as you know that a lot of the huge retailers, the anchors that have gone bankrupt, that have closed their doors. So it's creating a real challenge for the retail malls, the lifestyle centers are still a little distressed, but those are different. So if you think of a Lifestyle Center, that's a kind of retail property that you can pull up to, and there's some big box or maybe some boutique retailers, but it's different than a big big mall, right? There's a lot of food, there's probably some residential there. So it will lend itself to a sort of a quote, mixed use, but there's usually not a heavy office component with that. So and then there's just convenience centers, then you've got your industrial so those are your logistics, your flux spaces your manufacturing warehouse, than medical office Life Sciences, which is just booming, right. And then your mixed use properties very specifically is if you think of a Hudson Yards if you think it's it's really been a leading trend. And it's this sort of a an approach where you take this whole idea about the fact that people are living on a blur between, you know, this idea of work life balance, and everyone says they're looking for work or life balance, but I think most people know. I think really, since we've had laptops and way back even when there were blackberries, the work life balance became sort of a work life blur. You seem like you were kind of always on and then up companies themselves were going through, they're still going through these transformations, which is required a tremendous amount of work on the employees because they're moving from a new way, an old way of working to a new much more digitally transformed way of working. So what the mixed the mixed use properties. What they started to do is this this very deliberate planning around if your home is closer to your work, which makes your commute easier, your shift between work and life easier and taking care of whether it's family or your parents or just yourself to just have some time bringing the convenience Instant Access, have some of that retail that you'd need closer. So you can get to much more sort of a pedestrian lifestyle, where things are close for convenience and also for experience. And so, you see, you see mixed use properties. The first mixed use property, by the way ever developed in the country, I believe, is the old now it's the Roosevelt University building in Chicago, in Congress in Michigan. And when that was developed, right, at the turn of the century, it was this very forward thinking, development where it was a massive theater, the auditorium theater, and then I had a hotel attached to it with a restaurant and then an office building. So it's combining different uses together to read and then they should be like feeding each other or sharing, importantly, sharing systems. So even if you think of some of the Amtrak stations, so if you look at a typical Amtrak station, you'll have all the train tracks the rail running underneath the city that are bringing the commuters in and out, you have a pretty developed retail environment around that you've got the waiting areas around that, and then office and parking structures. So that also is a mixed use type of development. But the beauty of those developments are, they share systems, they can share chilled water, they can share a lot of the ingress and egress with security. So it's they're very efficient as

Phil Zito 21:23
well. Interesting. Yeah. So I want to explore that digitally transformed form of working, because that's something I know you had a lot of thoughts on our pre interview about. And it's something I don't think folks has figured out yet. What are your thoughts on that?

Maureen Ehrenberg 21:46
Yeah, yes, people today, I was speaking with someone last week, who they want to create a completely different way of managing their portfolio to a very, very large residential portfolio. And so they were saying that for their targeted resident base, they want to have an app and created an experience that most of the residents in the investment forum that they're taking probably hasn't haven't had a lot of amenities, or access to experience, even helping them register for where they could go get a COVID vaccine or helping them sign up, there were all sorts of bite ideas that they had. And yet, they showed up with a list of I think it was 35 apps and things that they had identified. And as I was reading through the list, a lot of them did the same thing. And it was more of I want to do this, I've seen all this cool stuff, what do I do. And that would be it that that would be I would say that type of customer who knows they want to do something and they're up very, very excited about it. And it's almost so much that you don't know where to begin. And then you've got very, very sophisticated professionals, particularly in workplace right now. That, you know, they start with the strategy and the plan. But there was a study done if ma did a study together with the workplace revolutionaries, which is a group within F ma. And they did a study, it's called a Delphi study, and they had SMEs from around the world participate in this live study. And what those all of those SMEs from different whether it's control systems, facility managers, this group, they were talking about what they believe is happening in the digital transformation of space. And the whole sentiment was that this push is coming now faster than ever. COVID-19 actually created a much greater awareness of the importance of it. But what it is also demonstrating is that if you do not quickly engage your HR professionals, your IT department, as well as the workplace and the facilities team as well as the business itself. You're going to struggle, because the fact is, it's this whole converged experience where HR is really at the helm right now helping determine which jobs which work will be fine to be remote. And then which teams would maybe want to be closer to where they live rather than very large commutes, then who's going to come down? And how are they going to what are they going to use the hub for? And maybe that hub is going to be much more collaborative meeting space or very deliberate intentional work rather than you just showing up every day. There was an article what this week there the nine to five job is dead, right? But but you just showing up at a desk and then going home. So once you can determine that the IT group has to come in to determine what systems do they have in place to enable very effectively, you'd be able to be productive in your job wherever it is that you're going to be working. And, but the systems and the buildings themselves. This is the big opportunity because it seems as though many people have planned the amount of construction, the amount of upgrading the systems, the amount of everything from just making sure that they've got more fresh air coming into the space all the way down to greater access to understand Should I come in? Should I not? Is the building full. So I can't come in any way because more it's oversubscribed today, based on the occupants that we've targeted those systems right now, the discussion of very rapidly changing how you use things is happening. So I would call that digital workplace. On top of that you've got the whole movement afoot with the property managers and the building owners. What do they do as far as the building systems themselves? What are they doing as far as that automation, everything from security access to bringing in? They don't want people running around too much downtown literally trying to get food. So can they bring food offerings in, you know, what are they offering? So, and then using an app? So I guess what I would say is that it's that we're finally beginning to see that big move towards smart workplace smart building, ultimately, smart city, which is been, you know, been the goal.

Phil Zito 25:52
Excuse me. So, man, that that's, if I am listening as a real estate developer, let's say I am a property manager, or maybe I am a executive at a company who owns some properties. How do I even begin with this? And how do I deploy this using traditional construction? vehicles for funding and for design? How is that even possible? I mean, that seems to be a challenge, I think, a plan and spec work. And then I think of apps and technology, and the two don't seem that sharp. So I'd be interested in your expertise, how you would kind of take someone through that journey.

Maureen Ehrenberg 26:49
Yeah, that has been one of the largest growing areas in the real estate space. So if you look at each of the service companies, whether it be owner developers, or and it's big, if you look at Tishman spire is doing or Heinz is doing the big the big owner developers, Brookfield have all focused on creating teams that bring that together that convergence of the technology, with the workplace with the building. And when you get that converged digital environment, that's a massive shift in the way people consume space. So and on the on the service provider side, there are teams and groups that work with occupiers and work with owners and investors to figure out a kind of a roadmap to say, what are the immediate needs and plans? What's the ROI? Now the biggest issue when you talk about ROI, and I think this has been a struggle. I know on the investor side, I was talking to someone the other days of an asset manager is a very, very large industrial portfolio, very, very large industrial portfolio. And I asked him what he was doing about renewables and what they were doing. There seems to be tremendous opportunity right now for them and solar and other things. And he said, you know, we struggle with that, because our tenants pay for their own utility bills. So for me to invest in these renewables, I don't really get an ROI for my investors for their buildings. And maybe it's really the tenants that should be doing that. And I, you know, the question is, well, where would the tenant have the space to put that if you own the building, and you own the land, you'd have to do something where you could at least program it. And then by the way, you know, you could approach a solar group that would probably finance it themselves, if they could resell what they could capture, you know, from the facility. So some of it is actually creating awareness. But also, I think this goes back to this whole thing around people working in silos, they, they work in their area, and there's not a tremendous amount of groups bridging across. So I do think it's very important for these workgroups that are happening, because what you see them doing is taking everything from building controls, designing, construction, workplace planning, business strategy, human resource planning, because it truly is a cross functional task. And that has traditionally, people talked about it a lot. You didn't see a lot of it happening. And now more than ever, it's absolutely required. One of the most fundamental shifts that we've seen in commercial real estate right now, is that never more than the last several months has the real estate team been front and center and the discussion with the business in the C suite. What do you mean by some of those conversations? Well, the C suite. It's funny if you think about a company. Most employees come in the door every day, wherever they work. And whether it's a multi tenant office building where you're a tenant in it, or you work for a company that owns its headquarters and you're going in the door you're walking across, a lot of stuff is taken for granted, like when they're having a big session. They're just expecting the lunch to show up and they're expecting the lighting to be right. And they're expecting the sound system be working. And they're expected to be comfortable in the room and not having big spikes. All of these things are being run by the people behind the scenes, the systems that are there in place in the building, the way the whole thing's been kind of put together and imagined, right for the occupancy. And all of a sudden, when everybody's out of these buildings, and they're almost like mothballed. And people are saying, Okay, now we got to come back, how are we going to come back and return to the office in a way that's going to be compliant with some of these new needs, and a lot of them are going to be on the employee side, because they've got different expectations now about their work experience. And and companies realize that their talent is expecting something different. They're doing employee engagement surveys to ask them, what would you envision coming back to be a great experience, and some are saying, Let me work from home a couple days a week, let me work from the office a few days a week. But at the end of the day, this gets bubbled up to the C suite for some decisions, the decisions are everything from Are we going to mandate that people have a vaccine before they return to the office, but to a lot of these softer issues? Like, are we going to be all right? And are we going to tell business managers and leaders here that people can work remotely or some people can actually opt to be home based 100% of the time? And should we go to a hub and spoke strategy, where maybe we repurpose the HQ and we start going to some pods out that are closer to where they live. And we come up with a hub and spoke strategy. Oh, and by the way, we've wanted to expand forever. And we just found out that that mixed use property down the street or that resort property down the street is on hard times we want to buy it, we want to buy the resort property and turn it into a training center, a collaboration Center, a meeting center, and it would be a really cool place that we never could have afforded that. In the past, because of the property type that today, it's it's actually readily affordable given it's a distressed site. And so people are really changing the way they're thinking about how they're going to react up. Well, as I said, the C suite with some of these plans, you know, these are very well thought out strategies that they're like, wow, you know, we've, we've, I'm not worried we're not putting our company at risk. Right. And by the way, when you think about ESG, so many people I speak with think ESG is about just sustainability. And it really is about the sustainability of that organization. And it is about environmental, but it's also about do you have a lot of employee turnover? is a great place to work, is it a is its purpose, something that people and investors align to and believe what they're doing. So it's a very broad topic. And if you think that your talent pools are at risk, that's actually an issue, right? So when the business and the C suite are asking the tough questions about metrics about, well, where is our property? Or where they're asking, oh, I want to reinvest, I want to make this a kind of a new digital, cool experience. And I want to have these reservation systems, I want to do all of that. Some clients are really crisp, the C suites, very, very impressed. It's like, yeah, let's move and they get behind it. Others, the idea of trust and trust is implicit in all of this. One of the biggest findings of this study I mentioned was that trust, that it's down to the trust between the employer and the employees. But it's also between management, it's also between does leadership think that they've got safe hands who are kind of going, you know, making these decisions underneath? There has been quite a bit of shift and disruption with some of these roles right now and in facilities and in corporate real estate, where they're looking to say, how are we bridging the old way of working to the new way of working? And do we have the right innovation? Do we have the right vendor and supplier partners with us, to help us in this transform sort of digital environment. And it's all coming under their main sort of digital transformation goals for the business. This is actually one of the goals now that are being stated. So it's no longer a sideline conversation. But I guess the final point I'm going to put on this is the toughest equation to kind of quantify energy and efficiency. Those types of math equations are sort of simple to underwrite. You know what you're going to save in utilities, you'll know what you'll save in operating expenses. What is very tough to quantify is the return on your people. And that has a lot to do with employee productivity and talent retention, and how they feel about the space. And so trying to get some very good metrics about Look, if people are losing several hours a day or they're not doing their best work every day. It costs us a lot more money to replace great talent or to deal with a workforce that isn't producing where they could be where if we made some of these investments in a more digital environment, the employee productivity will go up and that even comes back into the space utilization. So while they're a little bit tougher to quantify, some companies are saying we're just going to do it because we've made a commitment to digital transformation, and we're going to others are still very much looking for a business case. Interesting.

Phil Zito 35:13
That meant, so I like that you included the term underwrite and basically, that you you implied risk. And so we're going to look at an investment and look at the potential risk, and then the return. And I don't, I think that there's a lot of the contractors who are going to execute this, that are trying to sell into commercial real estate, they don't think about it that way. And I think that's probably one of the challenges as to why they haven't been able to make a business case for digital technologies is because to your point, if you're able to keep a $300 an hour person, and there are people who make $300 an hour, especially in the financial sector, people don't realize that, that there are very expensive employees out there, if you're able to keep that person from losing to your point an hour or two of efficiency a week. And you stretch that across a year. I mean, that pays for itself. So to that point, what building technologies and, and kind of what system technologies do you see being able to influence employee productivity? And I guess, and real quick before we go on ESG, you've used that term, the audience may not know what that means. And I think that directly ties into this question. So

Maureen Ehrenberg 36:44
okay, it's so it was probably the, one of the top topics of conversation at Davos this year, and it really isn't organization's commitment. He is the environment, s his social and societal impact. So that's local community. That's everything from creating a diverse supply chain to job opportunities. And then ultimately, what are you doing to impact your local community? And what's your purpose? And then the last, and this has a lot to do with digitization is G its governance. Okay, so in the governance realm, and this is where I think there's a just a massive opportunity for the built environment in general, is that when you think of the amount of money that is spent across the board, in real estate facilities, whether it's owned or rented, or these capital upgrades,

Maureen Ehrenberg 37:42
so much of what is done, and what's been done historically, is either through a spaghetti network of systems, that it and people struggle mightily to try to connect the dots to get one view of what is actually going on, whether it's in one building or across the portfolio. But then all the way down to, there's still a lot of manual, really manual stuff going on, or people who have implemented a computerized maintenance management system, cmms system, and yet, no one's really been trained on how to use it properly. And the data in there is either not normalized or it's not very good, there's not much you can do with it, you're looking to put a smart building implementation in place, and you realize, fundamentally, you've got to hit a whole reset on how do you what data? Is it that you need? How are you collecting it? And then how are you actually pulling it together, that you truly can analyze it and take, you know, take the learnings from it to do performance management. And that is the most fundamental win as far as governance goes. Because the fact is, the more of the building systems you can bring in, you can really map everything from your energy consumption to your carbon footprint reduction, do you recycling, if you're picking up the so it it is an opportunity and even in supply chain? How, how is the current EMP collecting the information on the vendors, even such that you could even start to analyze that. So there's ways now you can set your vendors up differently in the systems. So what it just comes to say is by automating workflows, by hooking up with the equipment by looking at the way people work in designing how people should be working. There's not just the environmental impact, which is super positive, the societal impact to have much more inclusion and feedback. Fantastic. And that's where smart workplace sits. And then ultimately, the governance component of that accountability of the performance management, the measurement and the transparency is amazing. And so you've got other areas of the business that have already gone through that. And if people have thought that, well, it's really tough to do with the built environment, and people are realizing today maybe it has been because maybe our systems lagged or maybe the thought on how to do it is lagged or The business, they've got lots of proposals from the facilities team and the property managers. But every time it's kind of like it might be that one project at the core business gets the money, and they decide not to do the project. They today people are really looking at that, because now going back to the question, you asked me about the C suite, they've come to realize how important this different way of reentering the office and using the real estate because the fact is, you can get far more efficiency, if you're back to what Darlene was saying, if you can get much better about managing the way your space is utilized every day and how it's utilized, space is expensive, and people are expensive. And so to have a way to manage it, where it's more of a dynamic use of space, rather than the old static use, it becomes a very efficient asset. And it gives those owners and I think this is where in the past owners had a different agenda, you know, than a tenant in a way. I mean, the owners always wanted the tenants to be really happy. So I don't mean that they love their tenants, they want their tenants to stay and renew and, you know, thrive there. But what, what happens is, though, the owner needs to collect their rent, and the tenant needs to operate their business. And they're usually whatever's going on in the business is really, you know, the owners running the common areas, today to have a much more fluid experience to go from entering the building, to creating everything from more efficient space, and to maybe reduce their footprint. And the owners thinking of how do they accommodate them, got landlords now offering their own co working space within a building, that all comes down to much more efficient use of the space. But in the end, it doesn't mean less rent, it doesn't mean less money, what it means is a different way of consuming space. And that's where this is advanced utilization and advanced systems, everything from getting much better air quality, getting much better air conditions where you can kind of really make sure that everything from your elevators, to the way you move people throughout the building and direct them to the building is a good experience rather than a frustrating one. But with that comes if you think about it, it's a logistics play. And if you can get a very smooth logistics play going, you can actually get more utilization and more rent, it just means you got to pivot. And so that's where all of these sort of smart systems and kind of a different way of thinking about how you use space than a traditional, you know, one tenant one lease one experience is what's different.

Phil Zito 42:37
That's interesting to me, because so you go through LinkedIn, you see everyone advertising about their analytics and energy and all of that aspect. But what I hear you say what I hear other thought leaders in the space, say, and the people who have actually been at the high level, when the thing is, is that I don't see enough of these kind of conversations happening where we're able to dive deep into things. I see a lot of conversations with high level folks like yourself, but they're scripted. And they don't get into these kind of questions. The reason I'm saying all this is that when I look at what is being marketed out there, as far as technology solutions, they're being positioned as energy and facility maintenance, but not, as, you know, logistics enhancement, not as workforce efficiency, which from the understanding I gained from Darlene and from talking to you offline is that actually has much more financial impact, then energy energy is important for a different reason. But financially the impact it has one, there's a ceiling on it. And two, it's a much smaller impact. Can you expand on that?

Maureen Ehrenberg 43:59
Yeah. So energy and renewables right now are absolutely a table stakes conversation. But it's been an area where there's definitely far more emphasis on it today. Absolutely. With the climate compact and everything else. That's definitely a huge area. But at the end of the day for dollars and cents, one of the biggest needle movers is going to be the conversation you and I had a little earlier where the landlord's understand that if they started thinking more about an ultimate outcome for their tenants that they're trying to attract, for example, to an industrial site, if that tenant needs to come in and they are struggling to attain their sustainability goals for example, it really does them no good for the owner to hand them a building with a brand new roof and say, Okay, there you go. There's your building. And yet they haven't really thought through the lighting program. Was there an opportunity for a solar roof but it wasn't done. So to think More about what package could I be putting together to help them attain those goals, that would be a homerun, those conversations typically are not happening. And I think the big users, the big industrial owners, like a prologis, a div CO, that's the next that's where they're going. And that's where they've gone, right. But when you talk about the building's themselves, the you know, it's this phrase that Darlene uses her 330 300, right. And so when we look about an average cost of utilities, if it's $3 a foot, and you're able to save 10, or 20%, on that, you're talking about 30 to 60 cents, and then you get over to the operating costs. And if the operating costs, your operating expenses are like $30 a foot, and you can save 10 to 20%, on that you're talking three to $6. But if your cost of your people per square foot, on average are $300 a foot to very easily $500 a foot to seven or $800 a foot to 15 $100 a foot if you're like a trading floor in Manhattan, and you do an employee engagement survey, which these HR teams are constantly doing. And typically your typical employee engagement survey has focused more on do you like your manager? Do you feel like you can get promoted? What do you think your upward Would you believe? Will you be leaving shortly? Or do you plan on staying here a long time? You know, those are typically the questions. The real estate teams are getting into say, could we please ask some questions about the building in the facility? Can we ask them about what where they're losing time in the morning? Can we ask them about what frustrates them the most about not only coming to work, but the office itself? Can we just get some feedback. And what we have found what the teams that are enlightened that have done this and their HR group are willing to add the questions to the survey.

Maureen Ehrenberg 46:57
Those surveys have come back with just incredible bits of knowledge that even surprised the corporate real estate executives because they think they know the answer, because they've heard, you know, complaints, maybe through the service requests. But typically, it's like everything from wire the restrooms, which you'd be shocked, right, like something so simple as Why are our restrooms always so filthy. And what you realize is, that floor in particular, has incredible amount of not only density, but if you've got people running in and out of a restaurant, because it's a trade war. It's a different type of use than maybe one on a meeting floor room that never gets used. But yet the typical way in the past that people have scheduled both services in the building is that people start on the first floor. And then through the day, it's like the second floor gets cleaned, the third floor gets vacuumed. And it's a very again, static assignment and go in and clean this restroom go clean that one, by the use of technology. If you know, for example, everything from the elevators have been going to a certain floor, they rest on a floor because you've got a meeting going on that day, you would know that you should redirect leaders from one floor to the other. And so you don't have to increase your expenses. But you can use the tech to make that experience so much better for them where they feel, you know, it's just a different experience. But all the way from that to they don't like their commute time they don't like the food availability, they don't like the fact that there's no food in the building. And if they lose an hour every day, because they've got to run out, if they want to get something and run back, those pieces of information come back in. And then you can start to add up, wow, I can actually add an hour back to someone's day I can add to our respective someone's day. These are the programs, this is the methodology, we can use everything from lighting systems to comfort if people are constantly miserable, it's too hot or too cold. And then you could make a business case for productivity gains, that if you could add 234 5% in employee productivity and satisfaction to 300 $400 $500 a square foot that is massive return to the business and productivity. And it's a completely different business case. And so that's why we say look at some of these tools as logistics tools or look at them as part of a solution to one of the bigger business problems that you're trying to solve. Because many people look at them. Like I've got bigger problems. I'll look at that workflow tool later, when actually maybe that workflow tool is the answer to your problem. But you don't think about it that way. Interesting.

Phil Zito 49:27
So how do you create micro feedback loops from people to get their feedback? Because as you're talking, I'm sitting here in my office and I'm thinking what could I do to enhance things like maybe I could put a water like a water machine in here so that I make sure I drink water throughout the day. Because I'll find myself at two o'clock having not drink any water all day and my cognitive abilities just collapse. And so it's like my micro kind of feedback, things like that. But you take it on scale. Imagine a floor full of people, not hydrating all day, not drinking water not getting proper airflow not getting proper oxygen intake, and how does that affect their cognitive abilities? How do you get those feedback points? Is that a governance thing is that what is that? How do you approach that?

Maureen Ehrenberg 50:22
Well, people have done everything from, you know, the very simple things on an app where you can actually just tag in and tag out or hit a skew and give feedback, everything from and just giving feedback in through a channel. The key though, is to understand and this is where, again, the technology comes in, you need to understand what building it is, and what they're complaining about a very, most systems, they might list all the different complaints. And so for example, if you've got a menu and let's say that you have seven offices, and you know that 111 of your offices has a barista, okay. But on the menu that I have, I don't have a barista. And it keeps asking me questions like, how is your barista? I'm going to be like, we don't have that we don't have this. And so you start getting results on your surveys, what are we getting the barista, you're getting all crazy,

Unknown Speaker 51:12
created a problem that didn't exist and

Maureen Ehrenberg 51:14
you've created. Right, exactly. And so it's very common, believe it or not. So the key is to make sure that if you're sitting in a building, your list is actually what you have, not what everybody else has, or whatever your software supplier thinks you should have. It's what you have, what you're looking for. The issue we've had, though, is over the years, that water was plentiful access to everything from whether it's sunlight to whatever was plentiful. And what's changed. Sometimes, actually, some of the office configurations have gotten better about removing exterior offices and giving you more daylight. But what they have done is to save money, we talked about it, they've shut down a lot of the systems are doing out of recycled air, they're, you're falling asleep after lunch. I mean, we're saying you're saving a lot of money and energy. But guess what, everybody sound asleep at their desk. So that goes back to open up the vents, bring in the oxygen bring in the fresh air, yes, it's gonna cost you a little bit more money. Okay. But But I mean, in COVID, we realized you should be doing that anyway, just to get the fresh air flow from the, you know, from the moisture in the air. But um, the fresh air flow is important, the filter systems are important, the lighting, and some of the advanced lighting systems that are out there, the amazing way lighting can do everything from if you've got one lighting setting for a conference room, and that conference room is used everything from employee interviews to days where you're going to be working eight hours on a project to your disciplining maybe someone and having a very serious discussion with them. Studies have found that actually the lighting for those different things should be at different levels and settings. And because some can be very stressful if you're trying to work a very long project. So those considerations when when shown, what these different enhancements can do are just incredible. But like you said, Phil, the immediate feedback mostly is through either work order requests, some sort of app, some sort of feedback regarding you'd like something or you don't like it, but that does go back to the employee survey. Because again, the first thing that went on a lot of these cost savings things were water, some of the things that you kind of thought, Well, you know, they could go to the water fountain, well, guess what, they're not going to they're busy, they're not going to get up, they're not going to go fill some of that they don't have over. And so unless you have a very clever recycling program around how are you getting that water to them? They don't want. They don't want the plastic bottles right in the fridge anymore. But there's really but but that's where time should be spent. How do we make sure that Phil's got pitcher of water on his desk, right, and you're staying hydrated and, and it's it This goes to all these different employees. Because if you think about those small little comfort needs that make people happy, you know, and make people feel like they're being thought about, it has a huge return. And that is where a lot of the focus right now is on the building tech side and on the workplace side. But again, it's that strategy between employee expectations, employee experience, and then how do we drive it? And then going back to and how are we hitting our goals for environmental? How are we hitting our goals for compliance and hitting some of those societal impact things that we're really striving to hit? And then how do we govern it? And the governance that I think that even goes back to the employee feedback loops, right.

Phil Zito 54:42
Hmm, interesting. So I know we got started a little late. Do you have time for one more? Sure. Okay, cool. So I definitely want to cover this because I think it's at top of mind, even though I don't see a lot of people talking about it, which is what movement Do you see? Or do you see any in the industry to prepare for the Biden administration's proposed sustainability policies? I mean, there's kind of two schools of thought one is that, that the policies will only make it to federal assets. The other is that it'll make widespread to code and and to existing commercial assets, kind of how far do you think the reach is actually going to get out there in the market? And then how do you see that affecting people's building and buying and operating decisions?

Maureen Ehrenberg 55:38
I believe that most people think it's going to make it to the federal level and not go very far simply because of past experience, right. And people think that past experience is usually an 85% predictor of future experience. I can't help but think this time is different. And why is that? We have seen now twice, during the great financial and the global financial crisis, you know, oh, 809, the reduction in carbon emissions, the impact to the planet was so positive, right, because of what was going on the slowdown. But unfortunately, when everything came back, it it like, literally caught up with and outpaced what we had been doing before. So that that was not good. And yet, we had all these shovel ready projects and things we were going to do. And yet it got a lot of talk, it got very little action. And it really did come back down to, to your point dollars and cents. And if it's not a priority, if it's not important to people, and if it's not a criterion for decision making, it usually will not make it right. So this time around, what I see is different. We saw that open letter from Larry Fink recently, when you look at what they wanted, you know what he was calling, as far as accountability. If you look at the United Nations, the goal set for 2030 that there are so if you think about employees themselves, when an employee is making a decision to come to the company, some of the first things they ask about is, you know, what is our commitment? What is our purpose? What are we do you know, what do we do? And they push their employer, they'll say, are we composting? What are we? Why do we have these cups here? Why do we even have paper cups for coffee? Why don't we have aluminum cups that you that we wash? Well, one problem is the cost of wash, those things are as much as probably more than the paper. So it's, again, what's the challenge to figure out efficient and economical ways because you don't want to waste more water watching them. So it's just figuring out a better way, a more sustainable way. Because I believe that most employees would be thrilled to know what their organization is doing to improve and make a difference in the environment, the bigger issue comes down to they the big, everyone's saying right now that whether you're an investment fund buying real estate, or you're getting a project ready, and you're going to be going with a corporation, and they've got a green lease, and they want to know what you're doing as far as compliance, everything from you know what the Green Building Council or some of the other measures lead. They'll start maybe cutting corners, because again, they can't get the ROI. But the fact is that if it's a required criteria, that an investor is not going to invest in your fund, because when they go through an audit and they look, your diverse supply chain is very small, and you haven't done much to move the needle, your participation in projects, where how you're impacting the community, what you're doing, as far as building systems and innovation is poor. Your measurements in your reporting is poor. That's because you don't have the data. As soon as you start getting denied or you're getting passed over because someone else has created a much more viable and sustainable mousetrap around their construction around their business model. People will change because again, we started with this will end with it supply and demand. And so it really is going to be you can say all you want that, Oh, I'm all about it. But if your what you're doing doesn't line up with it, and there's absolutely no implications or accountability for that. Then you just keep doing what you're doing, which is what's happened. But the as soon as people start showing that, Oh, your entire investment fund, you've invested less than 2% of the money with women or minority owned firms or you've done this, what's going on with that? It'd be like, oh, what does that mean? And if someone finally said, Yeah, you're not getting our billion dollars, we're not getting it. We're gonna go over here. Then they'd start I think getting more real about making big changes. And that's what I do think. I believe that is going to be different this time around because I do believe organizations are committed. And I think that whether it's how they audit and look at Compliance are how they look at the criteria they set and as someone to comply with their criteria, that's where we're going to start to see big change. So, and I keep reading about it and hearing about it. And I just, it just seems different this time around.

Phil Zito 1:00:13
Yeah, I would agree there seems to be a palpable feel to social pressure around a lot of different issues, more than we have time to cover in a in a single podcast episode. But I could see that happening. And I what I really like about your perspective that I feel like a lot of us who are practitioners Miss, is that this is kind of the thought process at the executive level, is it's different than us practitioners who are thinking, do we pick the 5000 Kelvin, or the 3000 Kelvin lights? It's more of a higher level of how does the light use case affect the efficiency? I like that you brought up the mood effect of people in their different states? And it's a different kind of thought process? And I feel like it's something that you can't specify easily. And I think that's one of the barriers to adoption, but I think we'll work around that. Is there anything else that you feel like as we close up, I should have asked or that you'd like to impart to the audience?

Maureen Ehrenberg 1:01:27
Just on that last question, one of the most meaningful things for accountability is that when we talk about, again, ESG, those metrics, and those reports being rolled up into the Corporate Social Responsibility statements that are filed by public companies, people are really beginning to scrutinize not only the results in those statements, but also the grades that those organizations are getting in hitting some of their goals, right? in those areas. And so those report cards when stock investors are looking and really taking note of the report card, and what kind of company you know, what kind of ESG they have, the companies themselves are saying, you know, we've published the report before, but now we need to kind of get much better at how we gather the data, and actually be more thoughtful about what we're putting in the report, because these reports now are taking on a whole new meaning. And I think that's really where we're going to get the traction because it closes the loop from intent to results. And then having a lot of transparency around what results are you actual results you're actually delivering. And that I think is going to be one of the biggest areas that if you're going to do business with one of the companies take the time to read what they've written, take the time to read their filings, because that will give you so many insights to what's important to that company. And it can help you meet or come up with solutions for some of the goals that they've stated. me seriously,

Phil Zito 1:02:56
we should have put that in the beginning of the podcast because I can't count. Not to toot my own horn, but how many times I would sit in strategy planning meetings for, you know, a $20 million controller's job. And I would sit with the account exec and I would say, Did you read their filings? You know, did you read their reports on their current initiatives? Did you do a Google search on news related to the company and what moves and it would shock me that these high paid corporate executive sales people weren't doing that level of research and like, but you want to sell to the C suite. And you're you're researching what's important to the MEP engineers, but not what's important to the C suite. So that's it's really good that you pointed that out? Because that's a very important point. You're

Maureen Ehrenberg 1:03:49
absolutely correct, Phil aligned.

Phil Zito 1:03:52
Well, thank you so much. All right, folks, there you have it. I hope you enjoyed that interview, I found it super enjoyable. And as always, you can go to podcast smart buildings academy.com Ford slash 240. To learn more, it's there you'll also find a link to Marines offered to schedule a 30 minute free consultation with her to get more expertise around how you go about designing your strategy for commercial real estate. So if you're a commercial real estate property manager, if you are a executive running a commercial real estate portfolio, and you're looking at how do I evaluate my technology, how do I evaluate my sustainability? And how can I piece all of this together into a cohesive strategy that I can then go and execute? You can find out more about that by clicking on that link and talking with Marina. So with that being said, thanks so much, folks. I look forward to seeing you in In next week's episode, and as always, have a great rest of your week. Thanks a ton and take care

Phil Zito

Written by Phil Zito

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