OUTPOST PROPERTIES - Town of Cohasset
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OUTPOST
Outpost Properties, LLC PROPERTIES
Town of Cohasset Planning Board
Scituate Hill Development – Hearing #2
July 28th, 2021
Outpost Properties, LLC (hereinafter “Applicant”) appreciates the Planning Board’s time spent in
consideration of the Applicant’s proposed development at 20, 25 and 30 Scituate Hill. During the Planning
Board’s hearing on Wednesday June 23rd, 2021, the Planning Board requested further information from
the Applicant. The Applicant’s responses to the Planning Board’s inquiries regarding: Needs, Parking, Mail
Delivery, Signage & Wayfinding, Traffic, Building Heights & Coverage, and Sustainability are each outlined
below.
Needs Assessment:
The Applicant directs the Board to the Needs Assessment (“the Assessment,” annexed hereto as Exhibit
A) previously submitted as part of the Applicant’s Site Plan Review Application filed on May 23rd, 2021.
In the Assessment, the Applicant summarizes the macro trend of standardized remote work policies across
the global corporate landscape. The Applicant included in the Assessment, market analyses conducted
by Morgan Stanley and published on February 22, 2021 that present an overwhelming argument for a
permanent increase in the amount of people that will be working remotely at least three days per week
going forward. Morgan Stanley’s analysts predict an increase of 3x-5x in the number of employees working
remotely going forward. At the time of the original report, the public statements by 53 publicly traded
companies (representing ~$11T of market capitalization of the ~$53T publicly traded market) regarding
their future plans for remote work were captured. Within those 53 publicly traded companies, 85% of
those companies advised that they had made a permanent shift to a hybrid or fully remote working model.
Morgan Stanley produced a more recent report published on May 20, 2021 which is annexed hereto as
Exhibit B, providing a timelier, but just as overwhelmingly, pro-remote work go-forward scenario. The
updated report includes nine new companies, seven of which plan on hybrid/remote work going forward.
Separately, the national trends and sentiments of both employers and employees have been well
captured by the unbiased thought leader McKinsey & Company (hereinafter “McKinsey”), in the article
dated July 9th, 2021, and titled, “It’s time for leaders to get real about hybrid.” (McKinsey Article annexed
hereto as Exhibit C). The Applicant finds the following quote to be particularly pertinent to the discussion
of the need for the proposed Scituate Hill development:
“Instead of directing a rah-rah return to the office, leaders would be wise to focus on
deeper listening and meeting their workforces where they are today. It will be important
for leaders to acknowledge, for instance, that they don't have all the answers—as their
companies transition to hybrid working models, they will still be trying to discover what
the right longer-term working model (the one that works for most employees) will be. It
will also be important for leaders to signal that they hope to make their employees
partners in designing the future of how their companies work.”
1
At the local level, some of Massachusetts’ largest and most respected employers, ranging from defense
stalwart Raytheon1 to the prominent financial giant John Hancock2 to decade-old, internet marketer
HubSpot3, have all made strong and public commitments to remote work policies. In addition to
having a happier, more balanced, and more productive workforce, one common and important
reason that companies cite for the adoption of remote work policies, is to help companies maintain
an equal and diversified workforce. In March of this year, Governor Charlie Baker spent $1.6 million
to commission McKinsey to produce a separate, wide-ranging report about the future of work in
Massachusetts, with an eye on using the findings to develop policies around keeping the state economy
strong in the wake of the COVID-19 pandemic.
The McKinsey report, titled “Preparing for the Future of Work in the Commonwealth of Massachusetts 4”,
referenced in the article annexed hereto as Exhibit D (link to full report in the footnotes below), was
published this past week (7/13/21), and offers projections on some of the trends and concerns cited by
local executives about changes in the Massachusetts economy post-pandemic. One of the report’s
primary conclusions is that remote work could shift the center of gravity away from urban cores to more
residential areas. Nearly one-third of Massachusetts workers could work remotely one to three days a
week, according to McKinsey’s modeling, and the MBTA Commuter rail ridership could plummet by 15%
to 50% in the long-term.
At the micro-local level, the Applicant highlights in the Needs Assessment the record high amounts of
commercial office space currently on the sublet market not only in Boston, but nearly every major
metropolitan area in the United States. Further, the Applicant in the Needs Assessment presents local
demographic information that demonstrates the disproportionately large amount of office workers in
Cohasset and the towns surrounding that would be most inclined to occupy remote office workspace like
that being proposed for development on Scituate Hill. Finally on this point, the Applicant includes a
comprehensive list of competitive remote work and existing commercial office locations, with pricing and
physical characteristics, to demonstrate that the proposed development is superior to the competitive set
in every regard.
The Applicant further points out in the Assessment the unique design elements and attributes of the
proposed community development that are not available elsewhere, and certainly not in any existing
commercial vacancies in the market. These differentiating attributes: privacy, sense of possession,
rightsized spaces, community, daylighting, amenity, tech-enablement, and fiber-optic connectivity, are
the factors that drive The Applicants’ proposed development’s superiority. The Applicant’s market
research demonstrates that these attributes can only be all-inclusively obtained through tenancy at
the proposed development on Scituate Hill. If these important, modern design elements that will be
made available to prospective tenants at the Applicant’s proposed development could be offered via
more cost-effectively obtained, alternative locations, the Applicant would be placing greater
consideration toward those options.
____________________________________________________________________________________________
1
https://www.cnbc.com/2021/05/18/raytheon-to-cut-office-space-by-25percent-as-it-embraces-hybrid-work-
.html
2
https://www.bostonglobe.com/2021/07/14/business/john-hancock-wont-require-employees-come-back-office-
until-january/
3
https://www.hubspot.com/careers-blog/future-of-work-hybrid
4
https://www.mass.gov/doc/future-of-work-in-massachusetts-report/download
2
The Applicant notes also that the private, dedicated offices within each coworking facility in the market
are running at strong occupancy percentages. Upon inspection in early July, the eSpace in
Hingham Shipyard had nearly all private offices occupied. The newly opened eSpace private offices in
Scituate were fully occupied when a query was made as to their availability in the early summer.
From a municipal planning point of view, the Applicant has annexed as Exhibit E a recently published
“Suburban Mayor’s Open Letter to Boston Commuters” written by the Kassandra Gove, Mayor of
Amesbury, MA. In the Letter, Mayor Gove highlights the benefits of remote work on local communities,
the need for cities and towns to upgrade their remote work facilities, and the “above and beyond”
approach that the Mayor and the City of Amesbury have taken when it comes to accommodating remote
work needs. Mayor Gove’s sentiments are perhaps best summarized by the following quote:
“The traditional model of working in an office is gone, and a new model of working
anywhere and everywhere is here. But it’s not enough to have a great local coffee shop
(of which Amesbury has many). We have to go above and beyond to create spaces where
people can gather, collaborate and yes, even work.
When I talk with residents, many of whom used to commute to Boston, they are excited
to spend more time here and with their families.
Having more people working remotely is good for them and it’s very good for our
businesses. Imagine how many people will replace getting their morning commuter
coffee at the train station and instead will visit their local coffee shop. Rather than an
evening commute, they dine out. When people run out at lunchtime to do errands,
they’re supporting local businesses in their community. It’s a win-win for everyone —
companies included, who are saving money on office space and infrastructure!”
It is important to note that Amesbury is a town that, like Cohasset, is only approximately 40 minutes from
Boston by car with 82% of the town’s population being office workers vs. Cohasset’s 92%.
Parking:
The development’s proposed parking supply exceeds the requirements of the Cohasset Zoning Bylaws.
Per the Bylaws, one parking spot per 200 square feet of net building area is required. The Project’s net
building area is 14,088 square feet resulting in a total required parking count of 70.4 spaces. As designed,
the Project provides 80 parking spaces or approximately 1 space for every 176 square feet of net building
area, exceeding the requirements of Bylaws by more than 10%.
Four accessible parking spaces will be provided in accordance with ADA and AAB requirements. In
addition, 2 bike racks and a handful of electric vehicle charging stations will be provided in support of the
project’s sustainability goals.
The Applicant plans to actively manage parking demand on site via dedicated parking spaces, parking
sticker decals, and on-site property manager inspections.
3
Mail Delivery:
The Applicant contacted the USPS Postmaster for the town of Cohasset, who provided guidance on how
mail delivery could be best administered at the site. The Postmaster’s main suggestions included central
or strategically placed P.O. Box installations, and the delivery of packages to a central location for pick
up. The Applicant feels the Postmaster’s suggestions would be in the best interest of all parties
involved with the site, and the design and operations of the proposed development will be
conducted in accordance with these suggested delivery methods.
Signage & Wayfinding:
Individual tenant signage at the proposed development, if any, will be modest and consistent with the
overall character of the project. The Applicant envisions small signage placards at the units themselves
with some helpful wayfinding signage at select locations within the Campus Community. A sign for the
community of “Outpost – Scituate Hill,” is all that would be contemplated on Route 3A itself. A numbered
system with appropriately named driveways around the campus are also at the forefront of the
Applicant’s anticipated wayfinding program. Some ideas for driveway names currently are “Minot View
Way” for the most elevated driveway where views of the Minot Ledge Lighthouse are available. Lower
driveways may be named “Scituate Hill Terrace” and “Outpost Path.” Subtle, wayfinding signs with logical
placement throughout the campus directing occupants and visitors to numbered units is being given
greatest consideration. The Applicant is prepared to meet and work with the Town Clerk to come up
with a system that makes best sense for all users of the proposed development. The Applicant
will be happy to additionally work with the Town of Cohasset Fire Department to establish the safest
system possible.
Traffic:
VHB has conducted a traffic impact and access study (TIAS) in accordance with industry standards. The
TIAS shows that the site-generated traffic will have minimal impacts. It is also important to note that the
Project trip generation is expected to be substantially lower than the previously approved
commercial subdivision plans for the site.
Some additional information regarding traffic and site history are outlined below:
• The Property Owner was conditionally approved for a commercial subdivision on which the
proposed development site resides, this subdivision contained a larger, multi-use development
with significantly more impactful traffic. The conditions of the approval included that the seller,
once every two years for a period of ten years, apply to MassDOT for a traffic light at the King
Street/Chief Justice Cushing Highway intersection. Each application has been denied.
• A portion of traffic to the site is comprised of cars that would otherwise have carried commuters
into Boston, to the immediately proximate MBTA parking lots or the nearby Ferry parking lots.
The routes to these MBTA parking lots brings cars directly by the King Street/Chief Justice Cushing
Highway intersection where the Applicant is proposing the development.
Building Heights & Coverage:
The Cohasset Zoning Bylaw establishes a maximum allowable building height for the property of 45 feet.
The Bylaw defines Building Height as “The vertical distance above the mean level of the pre-construction
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ground within 10 feet of the outside walls of the structure. On a flat roof, height is measured to the top of
the parapet or to the top of the main roof surface, whichever is higher. On a sloped roof, height is
measured to the midpoint of the roof surface; the midpoint shall be half the distance from the plate line
to the ridgeline measured over the outer surface of the roof boarding, and the ridgeline may not be higher
than five feet above the maximum allowed height. The limitations of this clause shall not apply to
projections not used for human habitation which, in the aggregate, do not exceed 5% of the roof area,
including without limitation chimneys, antennas, railings and cupolas”.
There are 21 structures in the proposed project. The building height has been calculated for each and a
figure illustrating the calculation has been annexed as Exhibit F demonstrating the Project’s compliance.
The maximum Building height proposed is the Sales/Management Building at approximately 35.5 feet.
Sustainability:
The Applicant recognizes and values the importance of sustainable practices. The proposed development,
as currently designed, brings exciting, above standard, opportunities for sustainability. The Applicant’s
novel office development approach affords sustainability not available in traditional commercial office
construction, and certainly not available in previously contemplated buildings on the proposed
development site on Scituate Hill. A “low impact” frame of mind has been applied to each area of the
development, as has benchmarking against Stretch Code and LEED Standards. Opportunities for
sustainability exist from the beginning of the proposed development into its ongoing operation, and are
summarized as follows:
Site Preparation & Layout
• The proposed development works with the existing topography to minimize site “cuts and
fills” to the extent practicable. The relatively small, split level building footprint allows
the site to be terraced into the slope, minimizing material export via truck travel.
• The Project will manage Stormwater in accordance with the Massachusetts Department
of Environmental Protection Stormwater Management Standards. A groundwater
recharge system has been designed to exceed requirements. In addition, the site layout
provides disconnected vegetated/landscaped areas that reduce the temperature of
runoff and allow additional opportunities for recharge.
• Site and building orientation will provide efficient, passive solar heat from the largest
window areas on the south elevations, while insulated roof slopes will predominantly face
north.
• LEED provisions include extensive natural light in workspaces to not only enhance the
wellbeing and productivity of occupants, but also to reduce the need for daytime lighting.
To enhance this sustainable practice, LED light fixtures will be utilized with photosensitive
controls.
• Electric charging stations will be added to encourage the use of reduced emission
vehicles. The proposed units are designed to include showers, which may encourage
alternative commuting methods such as walking, running, or bicycling.
5
• Bike racks will be provided at the sales/management building and the individual units
provide adequate space for bike storage.
Construction & Design
• Simple, wood-frame construction will be employed, built to exceed the Stretch Energy
Code – even though the proposed development does not fall under the jurisdiction of
Massachusetts Stretch Energy Code. Wood frame construction is favorable as it is highly
efficient with low embodied-energy materials.
• The proposed development’s landscape will include native, low-maintenance plant
material. Plant materials have been prioritized for their salt tolerance and value in
providing food and cover for wildlife.
Ongoing Energy Consumption
• The proposed units are small and efficient, requiring significantly less energy for heating
and cooling than traditional commercial office buildings. The heating and cooling of large,
open common areas such as lobbies and corridors will not consume energy as is the case
in traditional office buildings.
• The energy source will be electric rather than fossil fuel, meaning the site itself will not
produce any emissions.
• Efficient heat pumps for each unit will allow for tech-enabled, individual unit control for
occupied vs. vacant units.
• Sustainable plumbing and lighting fixtures will be employed, where appropriate.
The Applicant thanks the Planning Board for their time and consideration and looks forward to answering
any further questions that the Planning Board of the Town of Cohasset may have.
6
EXHIBIT A
OUTPOST
NEEDS ASSESSMENT: SCITUATE HILL COHASSET, MA PROPERTIES
Applicant: Outpost Properties/Mark J. Tryder
Issue: Assessment of need for a community of seventy (70) – seventy-five (75) safe,
private, efficiently-sized, individually accessed, office units on eight (8) acres of
commercially zoned land on Scituate Hill in Cohasset, Massachusetts (hereinafter
“premises,” or “development,” or “community)
At the peak of the COVID-19 Pandemic tragedy, 44% of United States office workers were
working from home full time, up from 17% prior to the Pandemic. The rapid, nearly 300% increase
standardized hybrid/remote work as corporate policy and created a historical and seismic shift in
demand away from traditional, centralized officing to hybrid/remote work solutions. Based on
this demand shift, and on the Applicant’s studies of market demographics and the current supply
of appropriate office options for remote workers in the south shore Suburban office market (in
particular, Cohasset), the Applicant concludes that a need exists for a community of safe, high-
quality, private office units such as that the Applicant proposes to build on Scituate Hill.
According to a recent Morgan Stanley survey (Attachment A), nearly 60% of U.S. workers are
expected to work remotely at least three days per week going forward. In the same report, Morgan
Stanley collected data from 53 publicly traded companies (representing ~$10 trillion of the ~$53
trillion public market or 20%) demonstrating that 85% of the tracked companies have announced
permanent hybrid/remote work policies going forward, or 99% when measured by market
capitalization. Only five of the tracked companies have publicly expressed an interest to return to
the office full time. It should be noted that many of tracked companies maintain offices in the
Boston market. The activity tracked above has translated into the most square footage ever
recorded on the Boston sublease market, which as of 4Q20 represented 23% of the total square
footage in the market. Other major markets such as New York, San Francisco, and Washington
DC are following similar, if not far worse, trends from the viewpoint of traditional commercial
office ownership.
The percentage of white-collar workers in Cohasset and towns surrounding (Hingham, Scituate,
Norwell, and Duxbury) is disproportionately larger than the state average (92% vs 44%, as seen
on Attachment B). The applicant feels the discrepancy in the percentage of white-collar workers
indicates proportionately greater demand for remote work solutions in the area. Furthermore, the
Applicant feels that the high commuting barriers (“door-to-desk” commute time is well over an
hour on average when commuting to Boston), combined with the strong lifestyle draws to the
area’s beautiful Beaches, Harbors, State Parks, Social Clubs, and Family and Community Events
(school, religious, sports, etc.), create upward pressure on demand for remote work solutions.
The Applicant feels that remote work solutions within the grounds of the home, while perhaps on
the surface appearing convenient and cost effective, pose threats to health and wellness that both
employees and employers alike have identified to be unsustainable. This sentiment is perhaps best
captured in the following quote from Jagdish Khubchandani MBBS, Phd and member of New
Mexico State University’s department of Public Health Sciences, who has been spearheading
research efforts on remote work conditions:
7
“American homes were not designed to be offices; indoor environmental
parameters are not well examined in the home office setting. More people are
working a greater number of hours, and there are no office time boundaries. The
lack of scheduled work times will take away from leisure time and as is, people are
socializing less and there is lesser human contact, which is a big risk for mental
health issues.”
For those that place importance on the health, wellness, and productivity benefits realized by
leaving the home daily to perform work functions, the Applicant concludes from their market
studies of available remote work options that there is a lack of supply of safe, high-quality,
efficiently sized and priced executive office suites. Furthermore, no option exists where
socialization and a sense of community can be as easily and safely achieved as at the Applicant’s
proposed Scituate Hill office community.
For the purposes of the Applicant’s study of available remote work supply, the target market is
defined as the surrounding towns listed above; remote work options have been defined as
coworking facilities (such as Regus and Workbar) and as executive offices within commercial
office buildings. The Applicant has compiled a list of comparable leases (Attachment C) in the
market that the Applicant feels are inferior to the Applicant’s proposed project in several ways
including safety, size, privacy, and community. The coworking private office leases listed range
in size from 35 sf to 120 sf, significantly smaller than the square footage per unit within the
community that the Applicant is proposing. Each coworking option listed forces contact with
others through common entrances, common in-office amenities (such as coffee stations and central
refrigerators) and perhaps most importantly, through common bathrooms. The Applicant’s
proposed units will allow for safety and privacy in each regard. Modern and safe common
amenities (such as private and common greenspaces and conference rooms) as well as an
intentionally communal site plan, will further differentiate the proposed development from the
competition for the many employers and employees that place importance on socialization,
collaboration, and community.
The premises sit on a corridor of Route 3A along which many of the development’s target
customers travel frequently (15,000-22,000 VPD as of 2014 MassDOT traffic study). The
Applicant’s personal experiences and first-person interactions with professionals who live in the
area reveal that one of the main advantages that professionals who live in the area have found in
remote working is proximity to their family, including their children and their children’s schools
and activities. Having an office on Scituate Hill, along this familiar and easily accessible highly
amenitized corridor, would allow these professionals to satisfy both their business and personal
demands.
The premises sit in an amenity rich area (see Attachment D). Occupants will be near to fitness
facilities, various levels of dining, municipal installations, and shopping. Although the target
customer will be someone who embraces the advantages to working closer to home and no longer
commuting into the city; the premises is located .2 and 5.4 miles from the commuter rail and ferry
terminal, respectively, allowing for access to Boston when necessary. It should be noted that as
8
commuting demand has weakened, the MBTA has signaled reductions in service to the South
Shore markets. The Applicant feels that such a reduction in MBTA service, coupled with a
difficult driving option to Boston creates upward pressure on demand for remote office solutions.
The drive to Boston from the subject property requires a relatively long drive just to get to Route
3 (16 minutes) and from another relatively long drive the Route 93/95 interchange (16 minutes).
The applicant feels that the premises offers an option to many office workers in the area no longer
wishing to spend such long periods of time in their cars, where productivity is limited, and risk of
endangerment is high. The applicant feels that it warrants mentioning that 24% of all fatal traffic
accidents take place during peak commuting hours, putting aside the environmental benefits of
fewer cars traveling shorter distances each day.
CONCLUSION:
The Applicant shall provide a superior option, not available elsewhere in the market, which will
be in high demand due to its safety, size, privacy and social and collaborative options. The
development will provide a unique, health and wellness focused opportunity for remote working
for people that have high demand jobs and high family obligations and wish to experience a more
balanced lifestyle. The Applicant has compared their proposed developed to other available lease
options and believes that it is the only development of its type, and certainly of its type in the area.
Needs assessment-scituate hill-tryder 041421
9
Attachment A
February 22, 2021 09:40 PM GMT
MORGAN STANLEY & CO. LLC
Office REITs | North America Vikram Malhotra
EQUITY ANALYST
Vikram.Malhotra@morganstanley.com +1 212 761-7064
WFH Tracker: Hybrid Model Alina Pappas, CPA
RESEARCH ASSOCIATE
Alina.Pappas@morganstanley.com +1 212 761-2528
Here To Stay; Specifics On Real Estate Investment Trusts
North America
Office Needs Are Emerging IndustryView In-Line
Our updated tracker reveals post COVID work from home Exhibit 1: While the majority of company's expect to
strategies are being mapped out and while still early, more begin phasing employees back Mid 2021, many recently
pushed back their re-opening dates to post labor day.
specifics around future office space needs are beginning to Return to Work Time Line Tracker
0% 20% 40% 60% 80% 100%
emerge. While Office can work NT, we remain concerned over
the medium-term prospects. Reiterate UW on VNO and OW 21% 38% 24% 17%
on PGRE. EARLY
2020
MID
2021
LATE
2021
SOMETIME 2021
Source: Alpha Sense, Company Data, Morgan Stanley Research
Office REITs outperformed today but this follows the last 30 days during which
the sub sector was the worst performing among REITs - Office was down
300bps where REITs were up 500bps. Today implied cap rates for the costal
office REITs range in the mid to high 6% range (excluding BXP) and we believe
this implies stocks are pricing in about a 10% correction in market rents. We think
that is consistent with what office REIT teams have been indicating but we
believe still may be too optimistic. However, as we have highlighted in prior work
- see Long / Short View on Office - office stocks can continue to work near-term
given the ongoing window of opportunity between a recession being fully priced
in and work from home impacts (WFH). Given this backdrop we reiterate our UW
on VNO and relative OW on PGRE.
We update our WFH tracker with incremental 4Q data and additional companies
(see Exhibit 2). In our prior research, Tracking Return To Work In The US And
WFH Views on Office CRE, we introduced our work from home tracker following
corporate announcements regarding 1) return to work, 2) longer-term thoughts
on adopting a hybrid work model and 3) impacts of WFH on office real estate.
Following 4Q earnings, we update our tracker for incremental data from
companies on our original list and have added 7 new companies to our tracker.
Our updated tracker reveals that more specific post-COVID WFH strategies are
being mapped out and specific details around the implications for their office
space needs are beginning to emerge. We highlight 3 main findings from our 4Q
WFH tracker:
1. A broader return to work will begin in the summer/post labor day. Morgan Stanley does and seeks to do business with
Company and REIT commentary suggests that the majority of companies companies covered in Morgan Stanley Research. As a
result, investors should be aware that the firm may have a
will begin to ask employees to return to the office during the summer or conflict of interest that could affect the objectivity of
post-labor day. Our tracker suggests 38% of companies are planning for Morgan Stanley Research. Investors should consider
Morgan Stanley Research as only a single factor in making
mid 2021 and 24% are planning for late 2021. Overall this partly depends their investment decision.
on the rate of vaccination of the broader population. Assuming daily For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
vaccinations increase at the current rate to ~2.5M/day (from ~1.5M now), report.
10our biotech analyst Matthew Harrison expects that ~75% of the eligible
population (12+) could be vaccinated by mid-summer. We note that we
view the return to office time-line and increases to office utilization as
precursors to office fundamentals.
2. A hybrid work model is here to stay - specifics are emerging. Companies
are beginning to lay out their work from home policies and provide
specifics around how they will impact their space needs. A few examples: 1)
Dropbox announced their Virtual First work model, which is leading them
to market a portion of their space for sublease, 2) VMware outlined that
they expect 20% of their employees to be office dwellers (vs 80% pre-
COVID), 30% will be hybrid, and 50% will be permanently distributed - see
Exhibit 4, and 3) Salesforce announced that they expect more than 65% of
their workforce to come into the office 1-3 days a week (up from 40%
during the pandemic) and in turn that they likely won't keep every space in
every city they are in. On the other hand there are some financial firms,
including JPM, that have stated that the real estate savings from WFH
won't be a game changer.
3. Is the increase in sublease space cyclical or WFH related? During earnings
many office REITs pointed out that companies tend to decrease office
space during a recession because of a reduction in head count and that the
latest office space cuts are less WFH related. While this is a fair argument
we think this is only partially true. For example Wells Fargo announced in
their 4Q20 financial results presentation that they plan to reduce 15-20%
of their 46mm sq. ft. office real estate by year-end 2024. While some of
this reduction may be a result of their head count cuts, management
highlighted that forced remote work has created an opportunity for them
both on the flexibility front for employees and on the ability to become
more efficient with travel and real estate. Similarly SunLife, beginning in
the first quarter of 2021, announced during 4Q earnings that they will
reduce and consolidate their real estate footprint across various sites in
Canada and the U.S., reflecting a change to a more flexible and virtual
work environment. We believe more specifics from a broader group of
companies will emerge in 2H21.
11Work From Home Tracker & 4Q Commentary
Exhibit 2: Work From Home Tracker
Return to
Company Name Ticker Mkt Cap WFH Flexibility Post COVID Office Footprint Office REIT Top 10 Tenant
Office Timeline
New Companies Added
F5 Networks, Inc. FFIV.N 12.26 Mid 2021 Hybrid Reduce OPI
LVMH LVMH.PA 272.82 Early 2021
CISCO CSCO.O 193.02 Mid 2021 Hybrid
Sun Life SLF 29.05 Hybrid Reduce
Deutsche Bank DB 23.94 Mid 2021 Hybrid Reduce
Jeffries JEF 7.23 Hybrid Reduce
Dropbox, Inc. DB 23.94 Mid 2021 Preference for Remote Reduce
Internet Companies
Amazon AMZN.O 1,636.54 Mid 2021 Hybrid for non-warehouse employees Increase CXP, VNO
Google GOOG.O 1,412.18 Late 2021 Hybrid Increase BXP, HPP, PGRE, VNO
Facebook FB.O 744.84 Mid 2021 Hybrid Increase VNO
Shopify SHOP.N 167.08 2021 Preference for Remote Reduce
Booking Holdings Inc BKNG.O 93.91 Hybrid Reduce
Uber UBER.N 108.10 Late 2021 Hybrid Reduce HPP
Electronic Arts Inc EA.O 41.98 Late 2021 Hybrid Increase
eBay Inc EBAY.O 42.17 Reduce
SNAP Inc. SNAP.N 98.82 Early 2021 Hybrid
Twitter TWTR.NB 57.69 Preference for Remote Remain the same CXP
Pinterest PINS.N 53.99 Hybrid Reduce
Zillow Group Inc Z.O 44.30 Preference for Remote Reduce
Zynga ZNGA.N 13.14 Mid 2021 Hybrid
Airbnb ABNB.n 120.87 Late 2021 Increase
Technology & Software Companies
Microsoft MSFT.O 1,817.45 Mid 2021 Hybrid Increase
Salesforce CRM 226.28 Mid 2021 Preference for Remote Reduce BXP, HPP
Vmware Inc VMW.N 60.73 Preference for Remote Increase
Slack WORK.N 25.14 Mid 2021 Preference for Remote
Box BOX 2.94 2021 Hybrid
Media & Entertainment
Netflix NFLX.N 239.26 Mid 2021 Preference for Office Increase HPP
Viacom VIAC.N 38.69 2021 Hybrid Reduce SLG
Banks
JP Morgan JPM 451.20 Mid 2021 Preference for Office Reduce
Bank of America BAC.N 298.80 2021 Preference for Office Reduce HIW, OPI
Wells Fargo & Co. WFC.N 156.41 Early 2021 Hybrid Reduce CXP
Citigroup C 136.95 Preference for Office Reduce
Goldman Sachs GS 108.59 Late 2021 Preference for Office Increase
UBS Group UBS.N 59.90 Hybrid Reassess
BNY Mellon BK 37.50 Late 2021 Hybrid Reassess
American Express Company AXP.N 106.10 Late 2021 Hybrid Reduce
State Street STT 25.30 Hybrid Reduce
Nomura NMR 18.95 Hybrid Reduce
Barclays Capital, Inc. BARC.L 26.67 Early 2021 Hybrid Reduce PGRE
First Republic FRC.N 29.04 Hybrid Remain the same PGRE
Credit Suisse CS 34.37 Hybrid SLG
Payments and Processing
Visa Inc. V.N 437.56 2021 Hybrid Reduce
MasterCard Inc. MA 330.96 Early 2021 Hybrid Increase
Fidelity National Information Services FIS.N 81.36 Hybrid Reduce
Square Inc SQ 124.72 Preference for Remote Remain the same HPP
Fiserv Inc. FISV.O 74.66 Hybrid Reduce
Global Payments Inc GPN.N 57.33 Hybrid Reduce
Rocket Cos Inc RKT.N 40.22 Early 2021 Hybrid Remain the same
Brokers & Asset Managers
BlackRock Inc. BLK.N 108.32 Hybrid Remain the same
The Blackstone Group Inc BX.N 83.97 Preference for Office Increase
Charles Schwab Corp SCHW.N 116.17 Hybrid Increase
T. Rowe Price Group, Inc. TROW.O 37.10 Hybrid Reduce
Equitable EQH 12.76 Hybrid Reduce VNO
Source: Alpha Sense, Company Data, Morgan Stanley Research
Exhibit 3: WFH Tracker Legend
WFH Policy* MS Definition
PREFERENCE FOR OFFICE The company requires its employees to go back to the office for the entire week.
PREFERENCE FOR REMOTE Employees have the option to work from anywhere (from home, the office, or both).
FULLY REMOTE The company mandates a work from home/remote policy post-COVID.
HYBRID Employees are required to come into the office a certain number of days weekly, but not for the whole week.
Office Footprint
Reduce Close some office space due to reduced need.
Increase Increase office space to allow for social distancing.
Reassess Re-evaluating which could mean moving offices to a different market, close, or increase.
*We recognize that there are different definitions and that companies could change their strategy.
Source: Morgan Stanley Research
12Exhibit 4: 4Q Commentary Around Work From Home
Company Source Commentary
"In the fourth quarter of 2020, we announced a new Virtual First work model pursuant to which remote work will become the primary experience for all of our
Dropbox , Inc. 4Q20 Earnings Press Release employees. As part of the Virtual First strategy, we will retain a portion of our office space to be used for team collaboration and a portion will be marketed for
sublease."
Chairman & CEO, David Solomon "The remote work environment has also catalyzed an increased focus on our location strategy. Last January, we expected that 40% of our employees
Goldman Sachs 4Q20 Earnings Call would ultimately work from one of our strategic locations, and we will continue to evaluate the potential for that number to grow over time. We will
alsolooktoexpandintonewstrategic locationsaroundtheglobeaswell asconsolidateour footprint, whereappropriate, inkeepingwithour evolving
business mix."
CEO, David Solomon, has opined that workers will be back in their offices by the end of the year.
Goldman Sachs David Solomon, CEO Solomon said, 'The big focus right now is we've got to get people vaccinated - we've got to get to the other side. I certainly would expect a lot of Goldman Sachs
Bloomberg employees back in full by the end of the year. We will get through this, and I'm really hopeful that over the course of the next six months we see a real
improvement.'
JPMorgan Chase CEO, Jamie Dimon Responding to a question on WFH savings post-COVID: "For real estate expenses, I'm going to say, $3 billion. o Even -- and I do think you can be much
Q420 Earnings Call moreefficient thanthat, but I don't thinkit'slikeagamechanger."
"I do believe that you lose things with people not being physically together. And so does it have to be for everyone all the time? No. And so I do think
that we'll beabletousethisasanopportunity, bothtocreatesomemoreflexibilityfor our employees, aswell astheopportunitytoreducethingslike
Wells Fargo President & CEO, Charles Scharf travel andbecomemoreefficient withspaceover time.
@ GoldmanSachsFinancial ServicesConference But I don't thinkit is-- it'snot -- we'renot goingtobeat an extreme. We're not going to go back to exactly the way it was before, but we're certainly not
goingtoliveinaworldlikethis. I thinktherearehugebenefitsof havingpeoplewithinclosephysical proximity. Thisdoesn't havetobe5daysaweek
per se. That's a made-up number."
"~46mm sq. ft. of office real estate expected to be
Wells Fargo 4Q20 Financial Results Presentation reduced by 15-20% by year-end 2024."
"We're a company that believes strongly in co-location for lots of different reasons — culture, the ability to train and supervise, the nature of problem solving and
Bank of America Cathy Bessant, COO & CTO creativity. And despite the fact that I read articles every day about productivity being higher in a work-from-home environment, we have not found that to be true.
Interview with American Banker That doesn't mean that a lot isn't getting done, but typically it's getting done over a much longer day, which is not sustainable and not good for anyone's health and
welfare. So we will be a company that does return to co-location. There will be a set of people who are high risk and therefore we'll customize solutions for them.
But we will try to come back to the office. No question."
"When you get to working from home, we'll see how that plays out. There are a lot of our colleagues that would come back to the office tomorrow if it's safe. So
Bank of America Brian Thomas Moynihan, Chairman, CEO & President once the vaccine is in, we'll adjust to see how that all works. And yes, we'll be able to be potentially more efficient with office space. But we started with 130
@GoldmanSachsFinancial ServicesConference million square feet of real estate under use at the beginning of this decade. We are down to 70 million. We already have plans to go to 60 million. So this might
help at the margin, but that -- we just have to keep executing the plans we had, and we're looking at all possibilities as a team under Anne Walker's leadership."
I think, like most companies, we have been surprised at how fast and efficiently the company and our decision-making have worked in a completely virtual
Jeffrey C. Campbell, CFO environment. While we now have the majority by count of our locations open to some number of colleagues, including our headquarters in New York, we still have
American Express @ Bank of America Merrill Lynch Future of Financials Virtual very small numbers of people in our offices, probably in the low single digits around the globe on average. But the pace of decision-making, our ability as a global
Conference company to work in a really coordinated fashion with people who are all over the globe, frankly, it's been better. And so we are spending a lot of time thinking
about how we sustain that.
We learned that nearly half of our employees want to come in only a few times per month, but also that 80% of employees want to maintain a connection to a
physical space. So we are giving employees flexibility in how, when and where they work with three ways of working:
Salesforce Salesforce Blog Flex – When it’s safe to return to the office, most of our employees around the globe will work flex. This means they’ll be in the office 1-3 days per week for team
collaboration, customer meetings, and presentations.
Fully Remote – For employees who don’t live near an office or have roles that don’t require an office, they will work remotely full-time.
Office-based – The smallest population of our workforce will work from an office location 4-5 days per week if they’re in roles that require it.
We're not -- we don't need real estate like we needed before. I mean, these are new opportunities that we continue to recognize and that we see as tremendous
for our future.
Salesforce Mark J. Hawkins, President & CFO
@ Salesforce.com Investor Day We're making a lot of decisions today as we begin to think about a post-COVID environment, including we're doing some minor lease rationalizations. We're
beginning to explore what that might look like in the future.
Salesforce expects more than 65% of its workforce to come into the office only one to three days a week in the future, up from 40% before the pandemic. An
unspecified number of additional employees would be fully remote.
Salesforce WSJ
Chief People Officer Brent Hyder “We’re not going back to the way things were,” Mr. Hyder said in an interview. “I don’t believe that we’ll keep every space in every city that we’re in, including San
Francisco.”
"Looking ahead, we expect a return to a more normalized pace of ground-up construction and fit-out of office facilities, which translates into a sizable increase in
Google Q4 2020 Alphabet Inc Earnings Call CapEx in 2021."
Andrew Wilson, Electronic Arts Inc. - CEO & Director, "FY '21 has been a year of outstanding growth while working through the challenges of the ongoing pandemic. Our execution continues to be strong even with our
Electronic Arts Q3 2021 Electronic Arts Inc Earnings Call employees working from home, and we expect that most will continue to do so through September."
" In April 2020, we announced that most of our employees would have the flexibility to work from home through the remainder of 2020. In July 2020, we extended
that flexibility indefinitely by announcing a permanent move to a distributed workforce for most employees. As we have transitioned to a remote-first workforce,
we are also using this opportunity to diversify our workforce, as we are no longer bound by the geographic limits of our physical workspaces.
Zillow Group 10K We expect that our offices will continue to be a place for teams to come together to enable productivity and collaboration. We are working to reimagine our
physical workspaces to provide more space for collaboration and engagement when our employees do come into an office."
We are also restructuring our remote work to more effectively use our time together and provide more opportunities to work asynchronously."
"We expect our new normal is 20% of our employees are office dwellers compared to 80% before COVID." We expect 30% of our employees will be hybrid, and
Patrick P. Gelsinger, VMware, Inc. - CEO & Director 50% will be permanently distributed workforce. We'll have flipped the company entirely. And when we gather, it's not going to be because we're showing up in our
VMware Inc VMware Inc at Goldman Sachs Technology and Internet hotels that are called office spaces, we're going to show up in our office spaces that are called collaboration centers, right? Because then we're going to meet
Conference (Virtual) because we want a hug, right, because we want to celebrate, because we're doing innovation sprints, because we're doing culture building events, right, when
we're together. But we are going to change the nature of our workforce entirely as we go forward. It will become more diverse, more flexible for people, better on
human lives, better -- and lower cost as well. All of these, and we're seeing improved efficiency as a result."
“We’ve been able to work seamlessly from home and could do this indefinitely, but we have heard from some teams that they would prefer a mix of working from
home and coming into the office,”
Zynga Frank Gibeau, CEO interviewed by San Francisco Business Times
“We’re looking at a blend of in office with remote work,” Gibeau said. “We’re looking at a lot of scenarios.”
"As we look at, for instance, with our team members and our workforce, our best expectation right now is that probably 50% to 60% of our team members are
going to be in some type of a remote hybrid situation where they're working from home or remotely 2 to 3 days a week. They may be in the office 1 or 2 days a
Thomas W. Sweet, Executive VP & CFO week, or they may be totally remote.
Dell Technologies, Inc. @ Wells Fargo TMT Conference
And so as a result of that, we're -- as you might imagine, we're reevaluating our real estate footprint pretty heavily right now in the sense of where do we need that
to be, and how do we shift that over the next 24 to 36 months."
Mastercard Reported by NY Post
Mastercard is moving and expanding to 150 Fifth Ave. and it’s offering 77,344 square feet for sublease at its current city digs at nearby 114-116 Fifth Ave.
Deutsche Bank The Real Deal "Deutsche is in the process of relocating from its 1.6-million-square-foot office at 60 Wall Street to a 1-million-square-foot building at Time Warner Center in
Columbus Circle. The new location has workspaces for 4,200 people, though it can accommodate all 4,600 current staff with flexible working arrangements."
“The office will remain our primary work location longer-term,” senior executives including Chief Operating Officer Rob Goldstein wrote in one memo sent to staff
in November. “Employees will have increased flexibility to work remotely part-time, but full-time remote work will be done very selectively and with approval.”
Blackrock Bloomberg
BlackRock still plans to move its New York staff into 50 Hudson Yards, a new skyscraper on Manhattan’s west side, in late 2022 or early 2023, a spokesman
confirmed this week.
"In addition to the Corporate restructuring charge of approximately $20 million after-tax recorded in the fourth quarter of 2020 to simplify our organizational
structure, we have also been developing a strategy for our workspace and redefining the role of the office, in a post COVID-19 world. Beginning first quarter of
Sun Life Financial 4Q20 Earnings Press Release 2021, we will reduce and consolidate our real estate footprint across various sites in Canada and the U.S. These actions reflect a change to a more flexible and
virtual work environment."
The French luxury-goods giant instructed Tiffany’s corporate staff to return to the office two days a week beginning March 1, according to people familiar with the
LVMH WSJ
situation. “It’s critical at this time of change that we adopt a hybrid approach to onsite-remote working,”
Source: Alpha Sense, Company Data, Morgan Stanley Research
13Valuation Methodology and Risks
Paramount Group Inc.(PGRE.N)
Our PT of $10.50 uses a 5.7% equity market risk premium. We also bake in slightly
higher cash flow in 2022 and beyond given higher than expected leasing (including a new
street retail lease). Our terminal growth remains at negative 0.5% (75 bps above the
current -1.75%) and we incorporate the latest 5yr monthly beta of 1.3
Risks to Upside
Exposure to higher growth West Coast markets leads to earnings upside
Lease up of key Barclays space ahead of schedule
Lower than expected WFH rates post-COVID
Beneficiary of industry consolidation
Risks to Downside
Degradation in investor sentiment even further across the office REIT sector
NYC office rent growth continues to decline
Delays leasing up key vacancies within the portfolio amid COVID-19 uncertainty
Vornado Realty Trust(VNO.N)
Our PT of $37 is based on our DCF model which incorporates a 5.7% equity market risk
premium, a terminal growth (which remains the same) at negative 1% and we incorporate
the latest beta of 1.31. We also adjust our cash flows driven by incremental cash flow
from new leases - primarily Facebook's new lease at the Farley building.
Risks to Upside
Strategic actions that bridge the private vs. public valuation gap.
Pre-lease announcements at development assets
Higher trajectory in street retail
Risks to Downside
COVID-19 leads to slower lease up of vacancies and lower occupancy
Headlines of rising NYC street retail availability, sharp rent declines or store
closures.
Work from home become a bigger issue from a magnitude and time line
perspective
14Disclosure Section
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The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they
have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Vikram
Malhotra.
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The analyst or strategist (or a household member) identified below owns the following securities (or related derivatives): Vikram Malhotra - Macerich
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As of January 29, 2021, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan
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Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of American Assets Trust Inc., American
Homes 4 Rent, AvalonBay Communities Inc., Boston Properties, Inc., Broadstone Net Lease, Inc., DHC US, Duke Realty Corp., Healthcare Trust of America
Inc, Healthpeak Properties Inc, Invitation Homes Inc, Kimco Realty Corp., National Retail Properties Inc, National Storage Affiliates Trust, New Senior
Investment Group Inc, Office Properties Income Trust, Prologis, Inc., Public Storage, Realty Income Corp, Spirit Realty Capital, STORE Capital Corp, UDR,
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Homes 4 Rent, AvalonBay Communities Inc., Boston Properties, Inc., DHC US, Duke Realty Corp., Equity Residential, Invitation Homes Inc, Kimco Realty
Corp., Macerich Co, New Senior Investment Group Inc, Prologis, Inc., Public Storage, Simon Property Group Inc, Site Centers Corp, SL Green Realty
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America Inc, Healthpeak Properties Inc, Highwoods Properties, Hudson Pacific Properties, Invitation Homes Inc, Kimco Realty Corp., National Retail
Properties Inc, National Storage Affiliates Trust, New Senior Investment Group Inc, Office Properties Income Trust, Paramount Group Inc., Physicians Realty
Trust, Prologis, Inc., Public Storage, Realty Income Corp, Regency Centers Corp, Simon Property Group Inc, Site Centers Corp, SL Green Realty Corporation,
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Invitation Homes Inc, Kimco Realty Corp., Macerich Co, National Retail Properties Inc, National Storage Affiliates Trust, New Senior Investment Group Inc,
Prologis, Inc., Public Storage, Realty Income Corp, Simon Property Group Inc, Site Centers Corp, SL Green Realty Corporation, Spirit Realty Capital, STORE
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Corp., Macerich Co, National Retail Properties Inc, National Storage Affiliates Trust, Office Properties Income Trust, Paramount Group Inc., Physicians Realty
Trust, Prologis, Inc., Public Storage, Realty Income Corp, Regency Centers Corp, Simon Property Group Inc, Site Centers Corp, SL Green Realty Corporation,
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