News & Insights
Aug 12, 2020
COVID-19 is having a transformational impact on American workplaces, which has short- and long-term consequences. Waller partners Bo Campbell and Aron Karabel join this episode to address the transformation. Campbell, a leader on Waller's real estate team, discusses the impacts on commercial leasing and how the work-from-home phenomenon will impact office trends and future development projects.
Here is a transcript of the conversation:
Morgan Ribeiro, Host
Welcome to PointByPoint. This is Waller's Chief Business Development Officer and the host of the podcast, Morgan Ribeiro. On today's episode, I am joined by Bo Campbell and Aron Karabel. Bo is a partner in Waller's real estate practice group and co-leads the real estate industry team. Aaron is a partner in Waller's labor and employment group and also sits on Waller's real estate industry team steering committee.
The pandemic has shifted the way Americans work and conduct business. I think we can all relate to that in terms of working in the office, working remotely or working from some vacation home. Many companies were forced to quickly invest in technology that enabled employees to work and collaborate remotely. And the corporate office that existed prior to COVID-19 has in many ways changed forever.
A lot of us have referenced that the genie is now out of the bottle and it's going be hard to put it back in the bottle. Folks are really adjusting to this new lifestyle. I'd love to hear from both Bo and Aron, sharing your insights on how developers and employers alike are rethinking this office of the future. The way that companies use office space has been evolving over the past decade, but COVID-19 has rapidly accelerated this change. So Bo, from your perspective, what should office owners and developers consider as they're reimagining office space, particularly for those spaces that were already in use?
The office of the future is clearly going to evolve from where we are today. One thing that all of the really good office owners and developers know is that they don't dictate the Office of the Future, their tenants dictate it. It's the tenants' needs and desires that drive how office space is built and developed. It's all about tenants. So you have to think about what tenants are going to want to do going forward. I don't know how long we'll have the concept of social distancing, but I suspect it's something we'll probably be thinking about for a long, long time. Now that we've been through this, you sort of get scarred.
So, how do we create office space that is attractive to people where they feel confident that they can come in and be safe and secure? It's things like touchless features, doors and restroom facilities and elevators. I think it is probably more high-speed elevators right now because you want fewer and fewer people on the elevator. So you've got to get them up and down quickly. My experience so far is that it's not been much of a problem because not many people come into the office, but when offices are going back full speed, you've got to have elevators that can accommodate that.
There are many places throughout an office space and an office building that are implicated when the Office of the Future comes around.
I see some head-nodding from your end, Aron. What are some of the primary client questions and concerns that you're addressing at the moment, particularly as it relates to everyone's working style? Working remotely comes with concerns as an employer and how you manage employees. What are some of the client questions and concerns that you're getting right now?
One question that we've been asked a lot is: “Can we require customers, patrons to wear masks upon entering our premises or even when state guidelines are unclear?” Since we represent folks all over the country, the guidelines aren't uniform. Certainly, every state and every local municipality have their own view on whether or not you should be wearing a mask indoors, outdoors and the like. So while their authority to enforce masks may vary, private businesses can require masks as part of a uniform policy across multiple locations if they have them, irrespective of the presence or absence of a mask mandate.
We've been asked a lot about that because in various places, you've got different types of temperaments for wearing masks. A client that has an office location in Chicago may get a different reaction than someplace in the South. It's a business decision ultimately. And it's certainly one that employers are struggling with a little bit with multiple locations all over the country.
Another question that were asked a lot about is waivers. Are they effective? Can we have them for employees? Are they different than one for patrons and vendors? The short of it is - they are different. You can have a waiver for a patron or vendor, but for an employee, it's much more difficult because employees can't waive future claims and employers are still responsible for the safety of their employees going forward.
Many states, like Texas, for instance, have either explored or passed legislation to provide businesses with liability protections. I say all that to say that waivers may ultimately be unenforceable, but could give an employer some cover down the road, should a state or Congress pass COVID-related liability protections and an employee falls ill and tries to claim they had no idea of the risks, those waivers can have some language built into them that basically says you understand coming into this building has some inherent risk associated with COVID-19.
What kinds of questions are you getting as some companies shift into this next phase where some employees are continuing to work remotely while others are returning to work?
There are a few things to keep in mind as employers are oscillating back and forth and different employees may be essential at one point or another. You have to begin planning for which employees are essential to your reopening (the boots on the ground) and which employees can continue to work remotely. Both the phased reopening plans and public health officials encourage bringing back employees gradually, rather than all at once. I think that's universal for most employers but there are also local guidelines about how many people can be in one space at one given time.
Second thing to consider is those national guidelines requiring social distancing, gradually minimizing in-person meetings, social gatherings, travel for some period of time. It’s easier when you have fewer people in the building? I think what employers are doing now is going through different plans and testing it out. They are asking, “Does this does this actually work? Are these physical barriers working on a small group of people? And then when we expand the number of people in the office, can we replicate it?” Things include modifying high touch surfaces, providing other types of PPE for employees.
For those who are working remotely, it's easy to monitor those employees who have objective measures, sales numbers, calculable number of phone calls. It's just more difficult when you're dealing with managerial employees to do that. And so that's been an area of struggle for folks, knowing how productive people who don't just clock in and clock out at nine and five.
Bo, you mentioned this earlier about some design upgrades. I've been on a couple elevators where you don't have to touch the floor buttons, it senses your finger before you touch it, but just a construction standpoint, do you think this is sort of a blip on the radar and short term, that what's going on right now on the world, social distancing, really shouldn't impact construction and these long term investments? How much do you see this impacting office space moving forward?
Great question, Morgan. Early on, when everybody thought this was a short term, fairly temporary thing, people made accommodations, and we talked about 14 days to flatten the curve. But here we are, six months later, we haven't moved. And so I think the world is going to be a little bit scarred by all this. I think a lot of these changes and construction kinds of things that people are going to want to see in buildings are going to continue. Touchless sinks and toilets and elevators and doors and things like that. I think in the modern offices, they're going to become standard as opposed to a luxury, which is what they had been in the past.
In terms of the floor space and the open floor space, that's going to be very interesting because this open cube concept has been a big thing for a long time and a lot of places, and I think the happiest people in the country are Plexiglas salespeople, because they're set on all these plexiglass sales barriers. So I feel confident we'll see creative ways and we actually have architectural foreign clients who are developing creative ways to create distancing within those kinds of environments as well because office space is still expensive, and they can't necessarily afford to put everybody in their own room. So you'll see a lot of creative design around that.
I think it also will dovetail into that there will be fewer people coming in, so maybe it's not quite as dense as in some time periods. So I think there'll be a lot of design changes and a lot of things that were formerly extra are going to become standard.
We've seen the growth of co-working spaces, and there was one that opened up, I think, back in February, right around the corner, and I wonder, where does that go from here? What are you hearing from your clients? Or what do you predict to happen?
You know, that's a really interesting question. I think it's kind of hard to say. I think there are some challenges in that kind of space because I think it's more difficult to control access possibly than it is in a private office space. If you go into a law firm, you’ve got to go past a desk and if you need to be tested and get your temperature taken or whatever you can do all that. These office sharing places are lots of people coming in that work for themselves or different companies. So I think those companies, the owners and operators of those spaces, are going to face challenges which I'm sure they will adapt to. But to try to control that kind of access and assure that people are not coming in when they're sick and taking temperatures and all those kind of things that we're seeing now would be challenging. Maybe all that fades away in two months. But I do think, again, the longer term ramifications of the comfort level of tenants and the space they want to be in will have an impact on that. And I think it will be a challenge. It’ll be interesting to see, as there's an awful lot of capital invested in office sharing companies around the country and around the world, so there's a lot of incentive to find ways to make it work. It's going to be a book that we're just on the first chapter right now.
Are you generally seeing that in terms of new office construction projects, have those just come to a complete halt or are some people proceeding forward with their plans that were made prior to the pandemic?
The building projects, this is office and other development projects as well, that were started and had funding, they're going forward. It's hard to stop one in midstream. I mean, you've got the money, you've got the investments, you're going forward. Hopefully, you've got enough tenants pre-leased to be stabilized when it's completed. I do think that there are some change orders in the construction contracts going on, some of these things we've talked about in terms of probably some restroom facility amenities and things like that.
What I'm not sure about and what I think will be interesting is what other kinds of amenities in these office buildings will be impacted. You're seeing more fitness centers and things becoming a thing. What do we do about those now when people are maybe not as comfortable about working out, running the treadmill, next to somebody, and so how will that evolve, and common eating areas, lobbies or outdoor eating areas and things. I'm hopeful those will continue but those kinds of things are all being rethought.
There's not a lot of just dramatic change. Everyboy’s trying to feel out how this is going to go because you just don't know how it's going. But certainly there's great sensitivity to those kinds of issues. The development community is nothing if not creative and resilient. And they adapt, and they figure out things and are really good at it. And they'll figure it out.
Now, the next follow up question would be, how much is that going to cost? So that's going to be interesting as well to see what happens to rents. There’s going to be interplay between possibly more expensive construction versus companies that maybe want less space, maybe more of their people are going to a hotel or work from home, and that they think they've got it figured out. You've seen some companies who said, we're months away from bringing people back to work, and months will turn into years before we know it, or people may not ever go back to their office. So that whole evolution of the demand for office space versus the cost required to make it attractive for people to come back is going to be very interesting to watch. We can all speculate and predict, and that's kind of fun, but we just don't know yet. We're in the early stages, in a lot of ways.
And a good segue to my next question, which is for you Aron. You mentioned the transition to work from home, and what if you work at a company that says, we're transitioning 50 percent of the office back physically present in the office, but I'm personally not comfortable with that. As an employee, how do I navigate that and what are your recommendations in representing employers?
This is not going to be a popular answer by employees but you know, an employer can insist that an employee return to work when doing so complies with local federal guidelines, and it complies with the requirements of the Americans with Disabilities Act when an employee is unable to return because of a disability. If an employee just doesn't feel comfortable coming in, that's not a reason not to come in. Employers get to decide whether or not that function requires you to be on site.
Certainly, you have to be careful as an employer making consistent decisions about who's coming in who's not. But ultimately, the question is “should” as opposed to “can.” So, yes, an employer can bring anyone at once back to work. Should they? That's an entirely different question that depends on the nature of the business, the nature of the work performed, and whether employee concerns are being addressed.
The most important thing I think in the where we are right now is transparency and buy in. Are you making your folks feel comfortable if you need them in the office, either once a week or every day during the week? Right? Do they do they have a sense that if there's an issue that you're going to let them know? I think that's really important, not only from a from a employee morale perspective, but also it will reduce the number of complaints you get.
We’re seeing a lot more OSHA complaints now than you've ever seen before because employers are just not being transparent about their safety practices. They may have them but if an employee doesn't know about it, and they're scared about something, they're just going to complain to anyone that'll listen.
Bo, are you expecting that office space and multifamily developments will start to become intertwined more as we think about this relation between work and home? Those lines are certainly blurred right now.
There is a lot of blurring there. There are a lot of mixed use developments out there or projects that are on a campuses that have residential and office space close by. There's not as much residential and office in the same building. I think it's possible that that could happen. I do think there are a couple of things.
One is the investor financing world that likes to invest in multifamily versus likes to invest in office are somewhat different. They're a little bit unique in what they like to invest in and how they like to spend their capital. So if the projects are intertwined, it’s sort of a combination project, and so it's a little bit harder to underwrite.
Probably, having said that, there are lots of ways to work around that. And probably, again, the financial markets are quite sophisticated; we'll probably find ways to deal with that. So I do think you're probably going to see more at least office and residential close to each other, and possibly intertwined more. My question is how many people want to leave the office and go up four floors to home? Some people might want a little more distance.
Aron, some people are huge fans of working remotely and other people would much rather be in the office. There are certainly pros and cons to each scenario, and many argue that employees are more productive working from home, spending less time in a car commuting, and with this employees are often on call around the clock. So how can employers ensure they're following wage and hour laws?
That's a tough one, Morgan. Employers really need to clearly communicate their expectations about when the workday starts and stops. Again, like I mentioned before, it's much easier for nonexempt employees because they may have a set schedule.
In terms of nonexempt employees, which what you want to do is, if you're going to have them work after hours, then you're going to want to document or have them document the time that they spent. And I always tell folks, if it's 12 minutes, round up to 15, don't round down; rounding down always gets employers in trouble. And you do it enough and you have a policy you're going to wind up with FLSA collective action. So you may be paying a little bit more but you have greater protection kind of on the back end of things. So that's what you really need to look out for.
And then at the end of every week, I would have employees acknowledge whether or not they worked the number of hours that have been recorded, and just have them sign off. Especially since certain work weeks may be transitional, right? There may be different things you do in one week versus another.
It's definitely a blurred line there when you are thinking about, hey, I woke up at seven and all of a sudden, it's six o'clock at night, and I'm still sitting in my pajamas working, and so definitely to kind of pay attention to those hours that you're keeping.
My next question is kind of along those same lines, where your personal and professional life are also starting to kind of overlap where a couple hours later, you know, all of a sudden, I think things start to kind of carry into professional and personal life. So let's just say you know, think folks are liking these virtual happy hours. Great way to connect with your colleagues and having some cocktails and then someone starts to you know, respond to me. Is there anything additional that you would add for employers and these scenarios?
Yeah, don't be the lawyer that goes to a zoom meeting without a shirt and tie on, that’s wearing pajamas. The moral of that story is dress appropriately. Know where the boundaries are for purposes of expectation, but really encouraging employees keep business hours. We see this all the time with lawyers. Some clients will call at 7:30, some clients will call at 9:00, and you've just got to be available. So keeping business hours is important, setting expectations that you're not on the clock all the time just because your physical location is different, that'll be helpful.
Bo, are you getting any unique questions when you're working with your clients or having to add new terms to deals or things like that as a result of what's going on in the world around us?
One question is do I have to go convert all the all the fixtures and all the restrooms in the building to touchless? Do I have to go change my whole elevator system? The answer is, well, you don't have to. But what we try to advise clients is it's important, we think, to take the steps that a reasonable commercial landlord would take in light of this environment, and you don't want to be the outlier. You don't want to be the one who didn't do something that everybody else was doing. So it's a judgment call. And again, it's all evolving right now.
The second thing that is definitely coming up in the documents and you see it in almost everything now is some sort of COVID related paragraph or section. Do we get our closing extended if there's a pandemic and it slows down, or our ability to get our financing closed lessens and things like that. So all of those things are out there. And we're getting lots of questions about those.
And again, it's kind of interesting to watch it evolve. Because every week there's another deal being done and someone's put in language, and then they want to do it because they saw somebody else do it and so, from that sort of emerges this market sensitivity or sensibility to what it is that ought to be expected. And so that's developing right now in all those kinds of leases and construction contracts.
What final thoughts do both of you have to leave us with today? And if you were going to design your ideal office space for 2021 and beyond, what does that look like? Aron, I'll start with you.
I don't think employers should be trendsetters. There's a article in The New York Times earlier this week about how we're struggling with COVID because American society is very independent, and there's less focus on the collective. I think in terms of the ideal office in 2021, we want to spend a lot of time learning from other developers, retailers, hospitality folks, employers, we want to be able to do these things in tandem, so that you're not you're not an outlier. Of course, there's just no right answer. One component of an ideal office is it complies with local guidelines, state guidelines, and is safe. But it's also consistent with the employer’s mission, vision and culture. That will vary from office to office, with the underlying focus on keeping your folks safe.
For new offices, you've got be flexible in terms of how you manage access to the office space, how you make sure your amenities and your common areas are as up to speed and current with health and environmental regulations and expectations.
And we all need to be monitoring the kinds of things that are going on in Congress and state level government laws, because there will be regulations that come out of this and there will be things, expectations, and we've got to stay ahead of that and kind of anticipate those. It's a lot easier to incorporate them on the front end than it is to come back and have to change them on the back end. So that's a challenge.
The other thing that's kind of interesting is you're seeing a little bit of a coming together of environmental and public health forces. Touchless faucets keep users from wasting water, since you can’t leave the water running, but they also prevent the transmission of germs on the faucet surface. So you see sort of the coming together of the two worlds here a little bit which means more energy and a lot more support behind it from different angles now. So a lot of things changing in the office, and we must stay head as best we can and try to anticipate changes as best we can.
Aron and Bo, thank you very much for joining me today. I always enjoy our conversations and look forward to having you on the show again.
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