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The real estate market has been through the blender, thanks to volatile fluctuations in interest rates that sparked a one-in-a-million buying frenzy in 2020 and an equally dramatic selling freeze in 2023. Both extremes laid bare the longstanding issues with housing availability and affordability, and the need for immediate solutions.
Nick Romito | Credit: LinkedIn
For Nick Romito, the founder and CEO of commercial leasing and asset management platform VTS, one of the solutions for America’s housing issues comes from the shift to hybrid working environments.
“We’ve had several black swan events over the past couple of years and truly it’d be impossible to look through history and find another series of things that have happened to make this cocktail we’re living in,” he told the Inman Connect New York crowd on Wednesday. “You had a global pandemic… [it] impacted how we use buildings and forced us to go from in-office jobs to work-from-home and then now we’re somewhere in between.”
Although employers are calling employees to spend more days in the office than not, Romito said the interest rate boom has made leasing and purchasing office buildings more expensive. Then there’s the rise of artificial intelligence, which has led some business leaders to whittle their human workforces in favor of their machine counterparts.
“There is a convergence of asset classes. We used to work in an office building. Now we work at home,” he said. “We used to buy clothes in stores and now we buy them online.”
“So whether you think about multifamily as a separate asset class, most developers have multifamily or retail,” he added. “Now they have to think about how those three asset classes work as a single platform for them.”
Brendan Wallace | Credit: LinkedIn
Romito and Fifth Wall co-founder and Managing Partner Brendan Wallace said these socio-economic changes are increasingly leaving America’s office buildings empty.
During the fourth quarter of 2023, the national office vacancy rate rose to an all-time high of 19.6 percent — a 14.28 percent change from the pre-pandemic average of 16.8 percent.
Instead of letting them sit unused, both men said there’s an opportunity to transform them into residential spaces.
“I’ve seen local government get involved in change, lots of zoning to try and make it easier,” Romito said. “I think that I get asked this every media interview that I do, ‘It is still very hard, right?'”
The VTS founder said the task is “hard,” thanks to the additional cost of converting an office into an attractive residential space. However, softening interest rates and price trends have opened the window for developers to take on the challenge.
“The numbers now are coming down to where it actually does make sense,” he said. “I don’t think you’re gonna see double-digit office conversions. I think it’ll be single digit, you know, maybe something like 5 percent. But that’s still a lot of property.”
Romito said the delicate balance between commercial and residential real estate not only benefits developers, but it can benefit real estate agents who have learned to leverage technology and their knowledge base to give clients an experience they can’t find anywhere else.
“It is part of people’s inherent nature to be resistant to technology, especially given the rate which is changing right now in the world,” he said. “I think we’ve never seen this much transformation happening around technology and information…”
“If you lean into that — just spend a little bit of time not your entire day — you will grow your business,” he added. “We’ve seen it happen just across the board with all of our users. It might be scary at times. You’re not supposed to know everything, but just spend a little bit of time and I promise there’s a return on investment.”