There Will Be Permanent Changes: Apple CEO Tim Cook Weighs in on Working from Home

“Some things actually work really well virtually”; but “the vast majority of us can’t wait until we can be back in the office.” By Wolf Richter for WOLF STREET. Apple CEO Tim Cook, during an interview at The Atlantic Festival, took on work from home, after having long been quiet about it, even as other companies have either jumped on the bandwagon with permanent work-from-home visions, such as Twitter and Facebook, or refused to jump on the bandwagon, such as Netflix’s CEO who called it a “pure negative,” or JP Morgan’s CEO who warned about the negative consequences of working from home. With Apple having just built one of the most stunning and expensive office buildings – designed for informal collaboration, and not for working from home – Cook’s verdict was mixed: On one side: “I don’t believe that we’ll return to the way we were, because we found that there are some things that actually work really well virtually.” On the other side: “The vast majority of us can’t wait until we can be back in the office.” Innovation has continued to take place, even as “85 to 90% of the company” was working remotely. “I’m incredibly impressed with our teams and their resiliency,” Cook said. “You can see from the announcements we’ve made this week with the Series 6 Watch, with the SE Watch, with the iPads, and with a new service called Fitness Plus. You can see we’ve continued on the innovation trail.” But… “It’s not like being together physically.” For creativity and serendipity, “you depend on people kind of running into each other over the course of a day, Cook said. “We have designed our entire office such that there are common areas where people congregate and talk about different things. And you can’t schedule those times.” “And so, I think the vast majority of us can’t wait until we can be back in the office again. Hopefully that occurs sometime next year, who knows exactly what the date may be,” he said. Other CEOs have lined up on different sides of the issue. Netflix CEO Reed Hastings told the Wall Street Journal earlier in September, when asked if he saw any benefits from people working remotely: “No. I don’t see any positives. Not being able to get together in person, particularly internationally, is a pure negative. I’ve been super impressed at people’s sacrifices.” And he said, “Debating ideas is harder now.” “If I had to guess, the five-day workweek will become four days in the office while one day is virtual from home. I’d bet that’s where a lot of companies end up,” he said. And when? “It’s probably six months after a vaccine. Once we can get a majority of people vaccinated, then it’s probably back in the office,” he said. JPMorgan Chase CEO Jamie Dimon said last week that it was time to get people back to the office. “Going back to work is a good thing,” he said. But added, “There will be permanent changes from this.” Dimon told analysts Keefe, Bruyette & Woods in a private meeting that working from home seems to have impacted younger employees, with Monday and Friday being particularly unproductive, and overall productivity and “creative combustion” has taken a hit. A JPMorgan spokesman then said that the productivity of employees was affected “in general, not just younger employees,” but added that younger workers “could be disadvantaged by missed learning opportunities.” Numerous social media and tech companies, including Facebook, Twitter, Okta, and Box, have made announcements about working from home becoming a permanent feature or option for employees. Facebook expects as many as half of its employees might be working remotely in five to 10 years. But Google, which extended its WFH policy at least until next July, has remained ambivalent about permanent aspects of it. All these companies have a huge footprint in the office sector, owning and leasing humongous amounts of office space that they figured they’d eventually populate. And what seems to be emerging is a hybrid model, depending on company, and depending on what particular employees do, to where part of the time is spent in an office – this could be four days a week, or it could be two days a month – and the rest of the time can be working from home, with many functions being completely manageable by working remotely. I do have to say, in my own experience, it’s kind of cute when you talk to a big-company or government employee, and there are kids making noises in the background. We’re just not used to it. But it works, and each time, the job got done. Each time this happens, I ask what they think about working from home, and I usually get a mixed message composed of these elements, with varying weights: “It’s great in many ways, it saves a lot of time, but I miss the interactions at the office, and some things are harder to do.” So it’s logical that Tim Cook would see opportunity in working from home – “we found that there are some things that actually work really well virtually” – and that for aspects where creativity and problem solving are involved, working in an office would be better, and more enjoyable. But as he pointed out, creativity and problem-solving too were successfully handled by largely working from home over the past six months. Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. 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“Remote Learning” Sinks Student-Housing CMBS, After Delinquencies Had Already Spiked in 2019

The formerly hot asset class was already troubled by a multiyear decline in student enrollment and a surge in upscale supply. By Wolf Richter for WOLF STREET. “Student housing,” a subcategory of multifamily housing (apartments) in commercial real estate, is now dealing with an existential crisis – similar to retail and lodging. The mortgages backed by this once a hot asset class have been packaged into commercial mortgage-backed securities (CMBS) and sold to investors. Students aren’t exactly stable tenants. And the risks are high even in the Good Times. Delinquency rates of 30-plus-days on the student-housing mortgages that back $4.7 billion in “private label” CMBS (not backed by Fannie Mae or Freddie Mac) started surging in 2019, and by January 2020 hit 10%, under the impact of oversupply of student housing, particularly the trend to “luxury student housing,” that came along with the eight-year trend of declining student enrollment. And then the Pandemic washed over student housing. The 30-plus-day delinquency rate by loan balance hit an all-time record of 13.7% in July, according to Trepp which tracks CMBS. Then in August, the delinquency rate ticked down to 13.1% (blue line), the 2nd highest ever, in part because some of the delinquencies were “cured” by entering the delinquent loans into forbearance agreements. For now, all other apartment property types (red line in the chart below) – despite the eviction bans – have shown relatively little stress, with a 30-plus-day delinquency rate at just 1.9% in August (chart via Trepp): The straight-down plunge in the delinquency rates of all other multifamily housing types in early 2016 was in part the result of the $3-billion delinquent loan, backed by Stuyvesant/Peter Cooper Village in New York City, being resolved after Blackstone and Ivanhoe Cambridge purchased the property. In addition, in August, the rate of student housing mortgages in “special servicing” – when a special servicer is put in charge of the loan – was 11.2%. And the rate of student housing mortgages on the servicer watchlist rose to 19.4%. By August, $1.6 billion in mortgages backed by 101 student housing properties have requested or were already granted COVID-19 financial assistance. Student housing is built on the foundation that students live on or near campus, and not at their parents’ place. For many people, it’s the first time living away from the parental umbrella, and it’s a blast. Or was a blast. Now colleges are struggling with the pandemic. Some colleges are still doing remote learning only. Others have opened their campuses at reduced capacity. Some that have opened their classrooms have had new outbreaks on campus and closed their classrooms again and switched back to remote learning. For students, this is a hugely frustrating and expensive mess. For example, one of the largest mortgages among these troubled student-housing mortgages that was granted forbearance, according to Trepp, is the $82.6-million loan, secured by The View at Montgomery, near Temple University, in Philadelphia, PA. In addition, the property secures a $9.8-million Agency mortgage that was packaged into a government-backed CMBS. On September 3, Temple University announced that “in-person course instruction” has been suspended for the fall semester. This is what a now largely useless apartment at The View at Montgomery looks like: And student-housing property prices are falling too. According to the Green Street Commercial Property Price Index, prices in August for student housing properties across the US have dropped by 11% since the onset of the Pandemic and by 12% over the past 12 months. This was behind only the 28% year-over-year plunge in prices of malls, the 25% plunge in prices of hotel properties, and the 14% drop in prices of strip-mall properties. Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how: Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

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