Frank Cottle [00:00:32] Joshua, Welcome to the future. Work podcast. Really excited to have you here with us today. Say, we’ve known each other for a while, and I know you’re a very talented investment banker specializing in the middle market, but you have an interesting background. Not many investment bankers have an engineering background. Tell me how that has impacted your work and how it makes you look at things a little bit differently.
Joshua Jahani [00:01:00] Thank you, Frank. It’s really good to be here, and I’m really excited to be on this podcast with you. When I started Jahani & Associates, it was really driven by the need of small and medium sized companies for bulge bracket advice. Most of the large companies that can afford to hire Goldman Sachs or Molis or whoever receive the benefit of people that have done billions of dollars of transactions and have decades and decades of experience. And that level of expertise is not available to small companies simply because Goldman Sachs and Molis can’t earn the profits and the revenues they need for their shareholders and provide the quality of service that they would be expected. So when I started Joshua, we had to figure out how to bring the same level of high-quality advice to clients, but in a more cost-effective way. We can’t afford to have 20 bankers working on one deal that may or may not close for five or $20 million. The fees just won’t support it. And so we’ve used technology a lot. We’ve used technology to provide customer service. We’ve used technology to acquire customers, and we’ve used technology to help communicate opportunities to investors in ways that I think the bigger folks in the industry haven’t. And we’ve used engineering to do that, systems engineering.
Frank Cottle [00:02:24] So your engineering background allow you to understand the workings of a company better, if you believe, than just a financial background. I mean, I’ve talked to God, I don’t know how many junior analysts at some of these big firms through the years. And you talk to one, you talk to them all. Not much difference. Hi, I’m the most recent graduate from Harvard. I think that is a difference, and it’s a difference that has merit. Too often when you speak to a financial organization, they want to talk numbers and they want to talk market share, and they want to talk things that are critically important, but they don’t really drill down into the workings of your business they don’t know how to. So I think that is a unique thing. But as we slide over to finance and we slide over to things that are impacting the markets today and focus on the capital markets, interest rates, inflation, these things have a huge impact. And as we look at companies, the way they’re developed, and the impact, particularly on real estate, it takes us to how people are going to work in the future, the future of the workplace overall. So what are your thoughts on the impact in the capital markets of our current economic situation?
Joshua Jahani [00:03:56] Yeah, it’s really a fascinating time and I view it in layers. Is that on one layer, exactly what you said, you have these interest rates that are high, higher than they have been historically, and that the Federal Reserve or the central bank of Europe, and banks in England are saying they will not immediately lower, and some of them are even saying they’re going to continue increasing interest rates. So that’s fact number one. And they’re doing that to combat inflation. And there’s reasons, there’s good reasons why they’re doing that. It’s a debate as to how they should do more, but that’s to the side of this. And then obviously, you have how increased interest rates affect capital markets with anything that requires leverage. That could be stocks, it could be private equity, public equity, but also in real estate. And then the third level is the largest asset class of real estate, by many analyst estimates, is commercial real estate. So you have this we’ll call it an explosion just to make it more interesting. But this significant rise of interest rates, which impacts capital markets, which impacts commercial real estate, all at the backdrop of this pandemic.
Frank Cottle [00:05:13] But it’s interesting because you mentioned the UK and the US. In the US we have the same situation, maybe even a little bit more aggressive interest rate approach. But the economy is doing well, the markets are doing well. In London, you’ve got the same interest rate issues, the same inflationary issues, almost identical structures, and the markets are in the tank, the economy is doing terribly. So how do you explain the same circumstance in the two very interesting economies, same set of rules, so to speak, but with totally different outcomes?
Joshua Jahani [00:05:56] Well, I think it’s hard to look at the UK and the US. As apples to apples, because the GDP of the UK is around $3.53 trillion, whereas the US is about 25 trillion. California is roughly the size of the UK, and so the UK is more.
Frank Cottle [00:06:14] Susceptible to but the California economy is doing well in spite of California being California.
Joshua Jahani [00:06:22] Yes, that’s true, that’s true. They’re so different. Right. When you look at the US and what we deal with here versus how the England and the UK get pulled, the invasion of Ukraine, Volatility in Europe, they’re more susceptible to that, which led to a lot of what Brexit was about. But some of the reforms and some of the changes that the bank is doing are specifically to make capital markets more attractive. I think you’re also referring to stock markets. The stock market in the US is doing well, largely driven by this recent AI boost. This chat GPT growth has made investors more willing to buy tech stocks, and it’s carrying the S and P 500. But to this capital markets ecosystem and these interest rates across the backdrop of this pandemic is just a very unique time. And when you think about to your question and what I think about all the time with the future of work, is it’s hard to predict how serious these changes are going to be? I think they’re going to be extremely severe. Not in a bad way, but extremely impactful, particularly when we’re five or ten years in the future and we look back, we’re like, remember when we used to sit in offices and breathe on each other and then we weren’t breathing at all and now we’re all in some kind of metaverse. You’ve seen this Apple headset, right? It’s really wild. And I run a remote company. We have employees all over the world. And if there was an AR VR solution that could help me engage with my employees more, something besides just like the two-dimensional screen, I would pay for it very quickly. And I think this is going to happen.
Frank Cottle [00:08:11] That’s an interesting issue because it’s really what are the drivers to the broader trends that we see overall? And when you talk about an asset class in real estate, commercial real estate being, if not the largest, at least one of the two or three largest asset classes in the world on a global basis, use the same analogy, UK and the US. In the US. In the major markets, including Allwork.Space, we’re approaching a 50% vacancy factor and our markets are fine. In the UK they’re only about a 10% vacancy factor. So, by comparison, they’re full up. Yet even in major cities, and we can do a London New York comparison in that regard. Both cities are dependent upon commuters. They import the workforce every day and send it home every night to a great degree. Both cities are very expensive to live in in the core central part of the city’s overall. And both cities are global financial centers. So how do we relate these trending issues, things such as inflation, such as interest rates, to the way people will work when we’re seeing such different outcomes in different areas? What are the common threads that we look at? I’d like to say it’s technology, such as you suggest, but I’m not sure today that we’re seeing that.
Joshua Jahani [00:09:56] It reminds me of what Elon Musk said. I think he was quoted as saying that working from home, and I’m paraphrasing, was immoral or unethical. And specifically what he was referring to was the engineers that worked for him at SpaceX and Tesla and his premise, I think it makes some sense. It’s always delivered a bit. It’s delivered in ways that cause controversy. Elon musk’s statements. But when you look at people in engineering and people that build physical things versus I watched a video shortly after that, Elon Musk interview with Kevin O’Leary, the famous shark tank investor, and he was talking about how people in compliance or people in certain kinds of financial services are never going back to the office. And I think those two examples anecdotal they may be provide insight into an answer of what you’re talking about, which is the kinds of workforces that exist in different cities. It’s difficult to say which one is London versus not London. But I think Elon Musk and Kevin O’Leary were both right. If you have to build something that’s going to go from point A to point B and it has wheels, it’s very difficult to do virtually. Whereas if so, Kevin O’Leary’s point, if you just need to look at spreadsheets and make sure that the balance sheet is balanced, why would you go into the office? Why? And I think that’s part of what’s driving certain areas of people working from home. We’re talking about that and the need for physical interaction in different workspaces.
Frank Cottle [00:11:42] Well, I think, too, the issue is that everybody has black and white statements, but the issue itself isn’t black and white. And when Elon Musk talks about remote work being immoral, there are degrees of morality that are acceptable and unacceptable. So does that mean a four day week work week where everybody goes to the office is a better solution that’s highly moral than Elon Musk’s point of view? Or does it mean a work week where you work two days from home and three days in the office? Is that moral enough to consider? And I think that’s what we’re looking at is everybody knows we need to get together face to face. We just don’t need to do it every day, all day long. And I think that’s where the shades of gray or morality come into it, if we want to use that term. I kind of like that term, by the way. It gets a biblical sense things. But you are talking about a lot of shades of gray here. And I think as we look at the future of work, jobs and job descriptions, you talk about people that build things, physical things. Well, does a lathe operator who’s running a machine to build parts for construction of an automobile, does that lathe operator need to be standing in front of the lathe anymore? No. I’m dealing with a company right now that has all heavy equipment that does landscaping not landscaping, but does foundation creation and everything for large, massive things, earth Movers, that sort of thing. They run all of that equipment remotely without people now, just like they run drones. So five people sit in a remote location, running large earth, moving equipment, scraping the earth, making new developments, doing mining, all sorts of things. There are no drivers. It’s all done remotely.
Joshua Jahani [00:14:07] You know what’s interesting to think about, and I think this builds on what you’re saying is a capitalistic economy is driven by serving the needs of your customers. So the customers pay you money to do stuff. And if your customers have remote needs, then you can serve those needs remotely. If they have in person needs, then you have to serve them in person. Like the business owner is sort of required to do what the customer wants to do. And people’s needs are more and more remote and more and more digital. So the future of work, as long as we’re a capitalistic society, which will continue for the foreseeable future, the future of work is going to be digital. It’s going to be serving digital needs of customers. And it’s even interesting to think about the price. So when most of their customers needs were in person, which is almost like pre 2020 retail, et cetera, the cost for that labor was low because there’s more competitive. There’s all kinds of supply and demand dynamics for that. But it’s interesting to think about a world with what you’re talking about in the world we live in, where if most of your customer needs are digital, then will the price for in person labor or an in person solution go up? And will we be in like an inverted capitalistic system where you pay more to do stuff in person? And I think that could even be impacting what we’re seeing on the commercial real estate side. I think we’re headed there.
Frank Cottle [00:15:35] Well, you know, it’s interesting. As you know, we have another company, alliance virtual offices, and we spend, as you’re talking and I think, of budgeting and personnel. We have a cost of personnel in our service department, but we are spending almost an equal cost right now in developing our customer redeveloping and improving the digital capacity of our customer service portal. That is all self service and the cost per employee of a service representative sitting at a desk handling questions, and that is x. The cost of the creator of the digital portal is three to five times x. So you obviously hope you have less of them or it’s not going to work. I agree with your situation. One of the challenges, and maybe this is an AI issue, is communications. When you come down to servicing customers, the customer doesn’t always know how to explain their problem. You have to interpret what the customer says and sometimes dig into what the customer says to understand their real need. And then you propose a solution, and if that solution is acceptable, you hopefully can implement it for the customer. It’s a pretty classic process that’s very hard to do digitally. We’ve all heard of, I’m stuck in voicemail hell. I can’t get to somebody that I can really do anything. And we’ve all been in these round robin things for years. What are your thoughts on artificial intelligence and how that might create an understanding bridge of need versus solution?
Joshua Jahani [00:17:45] Oh, man. Well, my brother was sending me Chat GPT, like he say, make a menu for someone that’s vegan or et cetera, and then he would send me the result. And it was just amazed. This was like a few months ago at how advanced the solution really is. And it made me understand some of the comments around regulating it that we’ve seen on the news. I’m not sure how the AI solution that’s hot right now that’s in the buzz can do anything other than lower costs that people have in fulfilling digital needs that customers have. Right. You log into Amazon and I think they still tell you it’s a robot, but one day they just won’t tell you, and you’ll think you’re talking to a human and it’ll actually be some kind of exactly. I think when you look at these kinds of like, that’s the commercial solution, right. That’s what we see you and I see as non tech geniuses. I don’t want to undersell you, but I think that you’re probably not a tech genius. Genius in other ways.
Frank Cottle [00:18:54] That’s correct.
Joshua Jahani [00:18:55] Neither am I. But what that might allow technologists to do is develop solutions that help bridge these communication gaps into something that we haven’t even thought of. Because when you think about AR VR solutions, a big problem is like data processing and being able to package data. And I really think that we’re at the cusp of a stepwise change in how we solve the problem you identified, which was really communicating. We used to do phone and then it was email, and now we have these video solutions. We’re just one step away from something else that’s more advanced, where maybe I see you over here and I see other members of the team on the other side, and I think that’s where these AI solutions come into play. It’s more on the back end.
Frank Cottle [00:19:41] Well, I know that we’ve been using video systems, which is a two dimensional process. I think the first video system we put into our own company and our own facilities was back in 82 or 83. This was before PCs were even prevalent. So this technology we’re using today has become it’s lowered its cost threshold, like by a factor of 10,000, and it’s increased its convenience threshold by a factor, again, equally of 10,000. But it hasn’t changed otherwise. The only thing that’s changed is I’ve gotten gray hair and lost some on top. So we do see that coming along change. We think it’s really rapid, but core technologies, especially if you’re an early adapter, don’t really change that rapidly when you reference Chat GPT and things of that nature. We’re creating a new position, a couple of positions in different companies, and we’re just right now referring to it as a prompter. A person who their whole job is to look at problems mostly around content creation and getting data and understanding how to query correctly and aggressively and thoroughly, and then vet the query to make sure the information delivered is accurate. Because we all have heard stories about chat GTP just sort of making things up on the fly sometimes, which adds a little extra spice when you’re the author of something and you misquote somebody terribly. Imagine quoting Elon Musk instead of Immoral. You said it’s amoral. Oh goodness. But a prompter is a new position that has been created not just by us, but by many people. Now this is a quasi technologist position in the same way as a data analyst. In many respects it’s a type of data analyst. And I see that emerging as an elemental part within probably every company in the future as we talk. Because if you’re going to adapt to these technologies, you have to use them with discerning care. You can’t just ask dumb questions and as they say, dumb questions get dumb answers. You have to be very careful of that. And that’s something that we’re going to fight a battle over because a lot of people will take the easy route, but ask those easy questions and then print it, put it out there, say it, repeat it. My goodness. How do you think our next political election is going to come in this regard? We’re going to be AI to death in every commercial. That’s going to create every form of mis, diss, and whatever other kind of information you want to say on all parties that we look at it anyway, I’m getting off the future of work a little bit, not with AI, but rolling back to the real estate. I know you have a lot of depth and experience there. Do you think that we’ll be repurposing cities based on these vacancy factors? Because the dynamics of the investment let’s create a scenario. Interest rates go up, yields vacancy factors go up, yields on buildings go down. Property companies go bankrupt thereafter, investors in property companies go bankrupt thereafter, investors in the investors so investors in insurance companies go bankrupt, et cetera. You hit this ripple effect chaining and yet unlike a typical bankruptcy, the asset is still 100% in place. In a typical bankruptcy, the assets are destroyed as well or materially impacted on a negative basis. In this particular case, the asset isn’t hurt at all, but everybody attached to the asset gets hurt because of this revaluation process. So how does that play out? Big question. If you can answer that, you can take over.
Joshua Jahani [00:24:45]
Yeah, yeah, that is a big question. I think what maybe it gives some hope because the reason interest rates are up is inflation is high and the Fed almost it’s not that they want us to be in a recession, but they’re trying to slow the growth it’s too high, it’s too fast. They know if it goes up really high and then it comes down too fast, the little people get hurt. And so that’s the purpose. That’s the reason they increase interest rates. And we’ve seen this happen in 2008. It was similar as residential real estate driven with the mortgage backed securities.
Frank Cottle [00:25:20] Sure.
Joshua Jahani [00:25:22] And so I think that maybe that can help reduce some volatility. And I would interpret what you’re talking about in the scenario you painted, which is correct, as the underlying asset is still there.
Frank Cottle [00:25:35] The scenario I’m painting though, Joshua, has to do with the vacancy factor, which impacts the economic return on the space, not just the interest rates. The cost of money getting higher. To deal with that problem is one thing, but the problem itself is the vacancy factor. As companies reassess, and they were doing this before the Pandemic, a lot of companies were reassessing the utilization of their space. To begin with, remote work didn’t happen in 2021 and 2020. Remote work was starting in 16 1718 when the Battle for Talent was going on and the employees were saying, you know what, I’d love to come work for your company, but I’ve got to be able to work from home one day a week. I need to be able to work from home on Mondays or I’m going to take the job at the other company that’s offering me a job. Battle for talent was driving remote work before Pandemic. So everybody was already trying to figure out the perfect remote work policy. Then the Pandemic hit and they got kicked in the ass right through the door and had to do it all. Now they’re trying to almost regroup to that 1718 time period where it’s a perk and a privilege as opposed to the default away that everybody works naturally.
Joshua Jahani [00:27:07] When we were talking about chat GPT and you use the word data analyst and you were talking about how that job would change with chat GPT, I was listening to you and I was thinking about when I think data Analyst I think someone relatively junior that sits there has to be in the office and is collecting data back when it used to be in files and cabinets and on paper. And you needed this job in order to collate this data so management could use it to make decisions. And when you think about the experience of that human, that data analyst over the last few decades, and now even with AI, that that job may or may not even exist, or it’s materially different now, it made me think about the future of work and made me think about how now that employee is still valuable. You still need that employee. You need them to be able to do their job. They do not need to be in an office, or at least much less so, depending on if you talk to Kevin O’Leary or Elon Musk. So the physical space becomes about experiences which I think ties directly into what you’re asking about these vacancy factors. And you said it too. It’s like we need to see each other, you and know we had dinner not that long ago and that was fun and I would like to do that again the next time I’m nearby you. I think it was probably better than this.
Frank Cottle [00:28:18] I think it was fun because I paid for it.
Joshua Jahani [00:28:21] Wait a second, wait a second. And that you need experiences and you need physical space to do those experiences, not cubicles. Which is an interesting even new economy, right? How are we going to start having more experiences in a commercial real estate setting? And these escape rooms were popular before the pandemic.
Frank Cottle [00:28:41] I don’t know if this takes us to an interesting point then because if you listen to the CEOs of the major companies they say oh, we need to preserve our corporate culture. And that’s one of the primary reasons we have to have everybody back at the office. So let’s step to the side a little bit. Talk remote work, talk flexibility in the workplace in general, work from home, work near home and then work in the office, work near home. Two perfect examples, a good one and a bad one. WeWork IWG yay. One of them succeeding, one of them’s failing. They do the same thing overall. They have the work near home solution. And one of the primary words that the flexible workspace industry. We used to say that industry is created by the combination of by combining people place and technology into a single bundled product that’s delivered with a highly flexible service agreement instead of a lease. Today you would say people place, technology and community. Workplace without community just like a corporation or an organization without culture doesn’t have a soul. It just doesn’t. And no one wants to work for a soulless organization or in a soulless environment. So when you talk experience immediately I don’t think of physical experience, cooler ping pong tables or whatever. I think of the community of who’s working there and how they interact together even though they might be from different companies. So where do you think the flexible workspace industry which is massive now and is the largest taker of new commercial office space globally now that one industry is it’s not the tech industry or it’s not other financial industries. It’s now the flexible workspace industry. They’re taking more new space anywhere globally than everybody else. So how does that shape reshape the future of work? When you think remote work versus in the office, work versus near home versus at home and you bring in this culture and community element I think it.
Joshua Jahani [00:31:15]
Turns it on its head completely. I accept your premise, this addition of the community word. I think you are correct. I don’t think anyone would really debate you on that. And if you accept that premise then the whole thing about having exclusive spaces, it flips upside down. And then the whole way we’ve been thinking about commercial real estate based on decades of historical data is just no longer the way it’s going to be utilized in the future, and certainly no longer the way that new people, as they enter the workforce, people graduating, et cetera, will see it. And the industry is going to have to change. It’s going to change everything about lease agreements, like you talk about service agreements versus lease agreements. All of this stuff is really important.
Frank Cottle [00:32:00]
Yeah. No, I think that is important, and I think we’re starting to see that. And I don’t want to say retrograde, but in some respects, when you look at cities and you go back 100 years and then 200 years, then 300 years, 300 years ago, you were living above the stable that was your bottom floor where your cows were, and it might have been in the city. 200 years ago, you were living over the top of your tailor shop or whatever you were as a tradesperson or a business. Only in the last 150 years, as we’ve completely industrialized, have people lived separate from their workplace.
Joshua Jahani [00:32:48] Yeah.
Frank Cottle [00:32:49]
Okay, so for tens of thousands of years, we have lived and worked in the same environment. And I think that while building shapes and sizes have changed and density has changed, that we are going to go back to a live work environment and repurpose cities and take Manhattan, take any tower, take it at let’s assume it’s 30 or 50% vacant today or will be tomorrow. What are you going to do with that space? What’s a major problem? Why don’t people want to work in the office? And you’ve hit it, the commute? Why do they commute? Because they can’t afford to live in the city. Well, if you repurpose that space, a third of the office space to residential space, all those people that we’re commuting, or a big percentage of them, will be able to now live in the city. And that will add a whole new dynamic to it. So I think we’re going to see it’ll be slow, evolutionary, not revolutionary, but I think we are going to see a repurposing of cities and will create a very vibrant environment, actually, where the people that work in this city actually live there, as opposed to live someone out somewhere else. And I think that will solve many problems, not just commuting, which is a problem of what’s the outcome of commuting? Loss of time, loss of quality of life. Pollution is a big factor there. And what’s the outcome of living where you work? Improved culture, improved arts, improved economy, where you live, reduction in crime. All these things have been proven. So hopefully the future of our workplace will be where we live, more closely.
Joshua Jahani [00:34:41] Aligned and accelerated by these things we talked about in the beginning of this.
Frank Cottle [00:34:47] Then the capital markets will. Allow that, and that reinvestment will be vibrant then. So we’re going to have to, like you can’t make an omelet without breaking a few eggs. Okay. And I think we’re going to have to break a few eggs here. But if we do, I think the omelet is going to be agree, you know? Good. Well, Joshua, if people want to get a hold of you, I know you do great work with companies. How would people reach out to you if they were wanting to do so?
Joshua Jahani [00:35:22] On our website, Jahanianassociates.com, there’s a pop up form to have a call with us and get to know us, and that’s the best way.
Frank Cottle [00:35:31] And I also know and want to thank you that you’re going to be writing some feature articles for All Work in the future based on financial approaches to the industry and our industry, which you know quite well. So I want to welcome you and thank you to becoming one of the voices for the Future of Work as we go forward.
Joshua Jahani [00:35:52] Thank you, Frank. It’s a pleasure.
Frank Cottle [00:35:54] Take care.
Joshua Jahani [00:35:55] Bye.