The Flexible Office Economy - Ep 5 w/ Lisa Picard, CEO EQ Office

This week: insights into how and why the largest of institutional office owners are diving into the Flexible Office economy

"We as consumers all have amazingly elevated expectations. We want everything everywhere, all the time"

"I think every time a lease turns over, a tenant is gonna look for that opportunity, to drive some of it to be more agile and more flexible."

- Lisa Picard

Listen to the full interview here:

Read the full transcript here:

Mark Gilbreath: This is The Flexible Office Economy and I'm Mark Gilbreath. This week we're talking about new platforms and traditional institutional owners that are transforming commercial real estate from the inside, redefining work place experience, reimagining what speed means and driving new asset returns. My guest today is Lisa Picard, President and CEO of EQ Office with over 25 years of property development experience. Lisa joined EQ in 2016 as COO and was named CEO in 2017. For those of you that aren't familiar, EQ is the office platform of Blackstone Group, the world's largest real estate owner. Since joining the firm in 2016, Lisa has become, a particularly outspoken advocate for change in the commercial real estate world, and in particular amongst, the institutional real estate category. Welcome Lisa, and thank you for joining us today on The Flexible Office Economy.

Lisa Picard: Thank you Mark for having me.

Mark Gilbreath: I know we both spend a good bit of time on the road, so I have to ask you, where do we find you today? I know your domicile is divided across at least three geographies, but where are you today?

Lisa Picard: Yeah, I'm sitting in our office in San Francisco today.

Mark Gilbreath: Your friends and colleagues know that you're an avid cyclist. Do you have an evening ride plan?

Lisa Picard: Uh, you know, not today. I did manage to get a ride in Annandale Park, a mountain bike ride yesterday. So today is going to be just a run to Pilates this evening. You've got to keep mixing it up and keeping the body guessing, otherwise, you know, it goes a little stale!

Mark Gilbreath: So to set the stage, we're talking about the Flexible Office economy and if I zoom out and look at the world that we've come from, for occupiers, the customers, not that long ago it seemed completely reasonable to sign a 10 year lease and it seemed completely reasonable to wait a year or more to move in while the space was fitted out and built out. It seemed reasonable to march your employees into a homogenous cube farm and it seemed completely reasonable to live daily with the burden of underutilized space over the course of that lease term, while you maybe grew into it. That's very much different than the world that we're living in today and the expectations of consumers have radically changed. Tell me about the point of view that you're driving amongst your team as you shift EQs perspective. And to what extent is there a different vision of how real estate works, in contrast to that which "once seemed reasonable"?

Lisa Picard: Yeah, it's clear that the way that we've worked has changed and, I think that there are three things that in my mind have fostered that change in the way we work. One is we as consumers all have amazingly elevated expectations. We want everything everywhere, all the time. And, I think that technology has enabled that. Technology has enabled a transparency and a speed and a higher level of expectation that want in our ordering of food to summoning a car to pick us up. And what that's done is it's created an enormous pressure on every business because every business is facing a customer with elevated expectations. Specifically for work, I can remember working tethered to an outlet and certainly had a laptop. But, without sort of the longevity of the battery we didn't really experience mobility like we do now. Having the power of this super computer in our hand has allowed us to really do work anywhere, and we do. So as a result, we're seeing the nature of what we have at home, we want at work. And we want basically all of those comforts to feel very hospitable and we want them to be where we play and where we work and where we live. And then the last thing is that talent is so critical to the success of an organization. What we're finding is that, we've come from an era around the machine and the machine age where we really looked at efficiency as the metric of productivity for work. And I think you'll still find companies are struggling with that whole notion "the productivity of work". And the fact the matter is that we are in a creative economy. And when you're in a creative economy, looking at what generates value in a creative economy is innovation and there's nothing efficient about innovation. In fact, what you're looking for is effective work and you're looking for success culture. And so the third thing I would actually say is that culture is really a new capital because it's actually driving the value within work. So when you put all of these things together, you're basically saying that the customer, call it the worker, needs an entirely different product than what the machine age delivered us.

Mark Gilbreath: As you've written before, office product now needs to deliver on three characteristics - flexibility, pace of delivery and experience.

Lisa Picard: I call it the three "F's" if you will. There's a real drive for it to be "Fast", fastly delivered. The second one is around "Flexibility" - having it be agile with how the organization shifts and adjusts. And the third one is just needing to be Fun and that's the cultural aspect that can drive positive success, successful work.

Mark Gilbreath: To what extent are those three "F's" apps, nice to haves at the fringe of how EQ operates versus things that are core to the economics of your business?

Lisa Picard: I think that those are existing in different proportions for different organizations. We've seen, traditional companies that are perceived as being corporate, really drive the cultural aspect, the "Fun" aspect of those demands, largely because they're trying to project that they are a different organization than who they have been in the past, because the word corporate is really sort of a stigma and a killer for organizations to attract a younger more dynamic talent base. If you are a fast growing startup, you oftentimes need things that are delivered very fast and also are very flexible because you have no idea how big you're going to be in the next one to two years. And in some cases you might be an established multinational brand that's wanting to put your foot hold in a market. And so you want something to be flexible because you don't know if you're going to have the resonance in that market that you might have in your existing core markets. So we find that they vary depending on the organization and where the organization might be in its maturity. The other thing I would say is that there are still organizations that are led by more legacy thinking leadership or have still a thought of stability in the way that they operate that that may not even be on this trajectory. They're not like practicing agile. McKinsey actually did a really interesting survey of about 2,500 businesses and found that 75% of them are seeking to work in more agile ways. And we know that working in more agile ways is actually looking at workspaces that are far more flexible, and in a format that allows them to iterate on product. My latest model for talking about the productization of real estate - because that's really what we're seeing happen - is that the traditional legacy real estate owner has really kind of managed its inventory like a timber baron or you know, like a forestry owner, right? And, that's like the traditional fixed core assets, right? And if you think about it, a traditional legacy owner would sort of manage its inventory with a stacking plan and an expiration schedule. And you'd sort of sort of sit back, just kind of like a timber owner and sort of say, oh, well this forest is going to mature in about three or four more years, and then I'm going to like call a timber broker to see if we can sort of push that out in the marketplace. Well I think the interesting dynamic today is that you have less buyers of raw lumber of, of raw materials. People need the product more finished, more cut, more delivered than receiving a log in its raw state. And when you're having to, in our world develop spec suites or cut that timber down to two by fours or two by sixes or two by eights, you have to really understand what the customer wants. You have to be closer to the customer and you absolutely have to operate in an agile way yourself to be able to be successful in cutting those products and finishing those goods.

Mark Gilbreath: Back to those three "F's", fun, fast, flexible, if where we came from was 10 or 20 year lease, the antithesis of flexible and 12 to 18 months to actually get through the leasing process and the build out process, and what I bought from you was a grey box that I then filled in with grey cubes, the antithesis of fun. I get, and we both understand what evocative and fun, fast, flexible environments can look like. From an asset standpoint, and I'm curious, from a strategy standpoint, how pervasive are these principles now as you think about the entirety of EQ? Are these a set of principles that you'll overlay across all that you do? Or are you thinking of this as a strategy that relates to some strata of the asset base that, that relates to some subset of your customer base?

Lisa Picard: Yeah, yeah, great question. I think that the, the demand for flexibility in the product, the demand for alternative products that isn't just sort of the raw materials of shell space is in very high demand. And I think that a lot of the customers in the marketplace don't have total awareness that the product exists. They're learning. Right? It's kind of like the, you know, the moment when you first learned about Uber and then, you started to tell 15 other people. I just think that like, every land owner, at some point in time we'll need to get into it just largely because, the product awareness is happening. And so for us, I think, you know, every large asset is going to have a striation in its income stream. In other words, if you look at a million square foot building, I think you're going to see anywhere from 10 to 20% of that have a flexible model in that, and have had sort of a much more flexible terms. It'll operate kind of like the apartment income stream that's in the middle of your "bond leases" if you will in the building. And I think there's gonna be other varied products that are gonna get developed from remote working platforms to spec suites that might be modestly customized. So if you look at it on a continuum, the way that we're thinking about it is that depending on how much customization you want is one going to determine how fast you get it and also how long of a lease we might need to kind of recapture some of the costs. We're in control of sort of the design process and the product is fairly malleable, we're willing to look at leasing that on a shorter term. And yet usually it's a slightly higher price. But I think most what we do find is that most customers in the marketplace are willing to pay a slight premium for access to a product quickly, that also has been well designed and has a modern touch to it.

Mark Gilbreath: So, fun, fast and flexible, how have you gone about, thus far, solving for these, delivering these to the market?

Lisa Picard: We're learning a lot from partners. So I think I learned early in my career, do what you're really good at and then partner for those things where there are people who can do it better than you, until the point that you can do it better or more cost effective in certain locations. Right? There are some locations where it just makes absolute sense given the scale of the asset, that maybe a partner can come into that market and really supercharge our delivery. And in some cases we have smaller assets, smaller offerings, and we know enough to essentially offer a newer or different type of product in the market. We've been building quite a large quantity of spec suites where we anticipate what the market might want based upon leasing volume of a particular size and just sort of the market, if you will. You know design sensibilities and we've been delivering that kind of product. And now I think, it's actually adding a service level that's contributing to the fun and the programming on the properties. So we currently have a priority this year to figure out how we can bring community to every asset and develop a playbook internally. We do believe the fun factor is critical for everyone to experience, not just those on a flexible lease model. We do have a priority this year to utilize technology, enable technology for us to understand and learn about the customer much more deeply than we do currently. And we also have more priorities this year to change our nomenclature and our centering around the customer as it's traditionally been around the property.

Mark Gilbreath: You've partnered now to move fast, as you've said. Are there any aspects of the skills or the muscles that you need to deliver on fun, fast and flexible that you don't ultimately see being core? And by that I mean that you ultimately don't sort of develop the ability to facilitate internally?

Lisa Picard: Yeah, I mean I think what's fascinating is that I do believe the flexible space providers, there's several of them out there who've done a really great job at developing a brand and they'll create a premium brand. And that's just something that, you know, you can't be all things to everybody. I kind of created this one video typing on Google that just said "coworking for ____". And literally, if you go every letter of the alphabet, you'll find a "coworking for something" of that letter of the alphabet. In other words, there is something for everyone and we can't be all things to all people. So I think where the brand resonates really strongly with a particular marketplace or a particular demographic that's strong, where we have an asset, we will park.

Mark Gilbreath: On a side note, does this hasten a change in the historical model that the flexible office operators had, where they would seek to be exclusive within an asset? Have you shifted to a world where you reduce that or eliminate that, where there may be multiple flavors (of Flexible Office) that exist within a larger asset?

Lisa Picard: Yeah, you know, I was early to the game and saying a couple of years ago that we will not sign any deal with exclusives, because they are a future inhibitor to leasing. Because what we started to see is that particular companies would actually bring their operator with them to a property. They wouldn't actually procure space through a broker. They were utilizing new acquisition channels through these various operators that resonated their brand that they wanted to kind of project to their workplace. So when these operators come and they bring, you know, tenancy and you've got an exclusive that prohibits another operator from operating within the building, you're really precluding yourself from future leasing. In fact, I think Cushman Wakefield did a study in Chicago that the flexible space operators have two and a half percent of the inventory, but control 60% of the class A space.

Mark Gilbreath: Hmm.

Lisa Picard: We definitely do not believe in exclusives. In fact, it's an inhibitor to generating a really vibrant property, where our customers can bring their selected service operators.

Mark Gilbreath: Let's talk economics or unit economics a little bit. If flexible means that deal terms are trending shorter.

Lisa Picard: Yeah.

Mark Gilbreath: If pace of delivery means that you're having to put risk capital in up front and perhaps even higher buildouts than you were traditionally putting into a TI package. Those both run against the unit economics or the profitability of a traditional deal. So what levers can you pull, are you pulling to sort of make these new unit economics work?

Lisa Picard: Yeah. I mean, you just zeroed in on probably the major tension, right? So what you're seeing is that the very stable bond market of the office building, where essentially you have longer term occupancy, you're sort of playing with the lease economics to equate to a bond yield, essentially a yield that you need to create the value in the building. If you think about it, what do bond holders care about? The bond holders care about their collateral, fundamentally. They don't really carry care about the borrower per se. But when you start to shorten the term, you're really migrating away from a bond or a longterm lease model to really a service model. And the dynamic is, under these shorter term leases, your service game absolutely has to go up. And here's the interesting thing Mark, is that already the retention ratios of tenants are, you know, the lowest they've ever been. And it's no wonder, I mean, I just talked about mobility as the new work style. Remember the days when you had a business card and it was really critical about your address being on that business card? Today the address is probably the least significant, other than your email address and your phone number. It's so easy to move a company now. In fact if I'm sitting in a legacy space, I can't wait to move my company to turnover the new leaf. So I think what the little bit of a misnomer is here is that like if you're in the office business, your service game has to go up, right? Because one is you're going to be doing shorter term leases, but two, you're already not able to retain tenants. We used to underwrite with 70% retention ratios. And now I think if you looked across the board at the majority of the major REITs, not just the ones that are in high growth markets, you're seeing retention ratios below 50%. So my point is that if you get down to the specific deal economics, the things that we are finding, generally the deal economics are you lease space on a per office or per desk basis. I mean it depends on who you are. Sometimes you're, you're leasing it on a per desk but on a per office basis, you're getting to a monthly nut and you break it down to what a company wants to spend per month. It's sold on different terms and as a result, you're actually able to lease the space or rent the space or license the space, whatever terminology you want to use at somewhere between 1.5, 1.7 and two times market rent. Now the multiple largely depends I will tell you, on sort of the elevation of the market rent currently. So those that are in San Francisco and New York that are already at high levels of rent per foot, you're going to be on the lower end of that spectrum. But in markets like Chicago and LA and in Seattle, you can definitely see rents tenants are willing to pay that are 2x market rents. And that will compensate you for the shorter term as long as you can perceive that you can reuse the space. And even though a tenant will say, "Hey, I'm going to lease this for one or two years with a high service model", they become really sticky.

Mark Gilbreath: Speaking of London, I was excited to see, to pleased to see British Land be one of the first, if not the first large owner that I saw share some data on this point. They publicize that they're seeing a 46% net rent premium.

Lisa Picard: Yeah. And I think, you know, the whole British Land dynamic, particularly in London, the demand in the London market is off the chart. And you have, you know, Brexit and uncertainty and that uncertainty. The uncertainty doesn't advocate for someone to go sign a five year lease. I've seen data that actually says that the flex operators, if they're not overly debt laden, they actually do pretty well in uncertain times. And if you looked at the property market in London during this whole timeline with Brexit and the uncertainty in the marketplace, those operators have done really, really well. But as a result, every land owner I think in London is actually getting into it, they're closely getting into it. And it's actually, I think, the traditional operators who do run a flex market, their yields to come down. So the very fact that like British Land is saying, "hey, it's a 46% premium", and I think we've seen stuff from Washington read that says in the DC market they've been getting a 30% premium, the operators are used to getting a hundred percent premium.

Mark Gilbreath: So to borrow the cycling metaphor of "incremental gains", in terms of making those unit economics work, at this point in the game of optimizing, is it really just about, "we're gonna put some rate premium on there and that rate premium is going to be fundamentally a function of us being able to deliver a service experience at a quality level? Are those the two levers right now to play with or are you yet looking at opportunities for incremental gains around other things - legal expense, Capex concessions, broker fees, et cetera?

Lisa Picard: Yeah, you know, you start at one spot of where you can justify the business model. And I think there's a couple of couple of levers in that first early economics business model, which is really won on rate. And then I would argue too that I'm seeing some of the investment community say that they do like at least 10% of the flexible product to be in there just because it actually creates a little bit more vibrancy to the lease up. And in many cases it allows tenants to have pressure relief valves if they actually signed a long term lease. So you're seeing that kind of come into a compressed cap rate. Some would argue 10 basis points or so, but you are seeing it. So there are initial signs economically that there are benefits to the model. And that's obviously because the customer wants the product. And then, you know, there's all these other ancillary services that do represent potential. You know as the owner, we've never really wanted to migrate into managing IT and other components just because of the risk factors. But that's another area where we're already looking to partner and see that as real revenue potentials.

Mark Gilbreath: So you said 10% a couple of times. Let's forecast a little bit, do you see 10% as a likely sort of equilibrium point in terms of the asset allocation of an EQ portfolio, flexible versus traditional?

Lisa Picard: Well, I think, I think 10% is pretty easy to swallow for a large asset. I mean, if you've got a million square foot asset, you know, it's a hundred thousand feet in a building. We have a lot of large assets. But I think, you know, the general convention for most people from an accessibility perspective is, 10 to 20% if you're just throwing these numbers out. But I do think it has to do with the nature of that tenancy. Who is actually occupying the flexible space? Right? If you have 20% flexible space in your building and it's 100% dedicated to one enterprise user who's utilizing the space as swing space for their new construction, I don't think that's so safe.

Mark Gilbreath: Indeed. Well, so target customer then, let's, let's step to that. In generation one of the Flexible Office economy, I'll call that the Reguses of the world, the customer was likely an accountant or an attorney or an SMB. In generation two, we have the emergence of coworking, which brought a whole level of the level of experience and thousands more operators. And that typical customer, at the early stages was pretty much, you know, the freelancer or the startup company and that team or individual that was looking for community. There's now a lot of talk amongst that generation two group, talk amongst the Industrious, WeWork and other of the criticality of the enterprise customer. Share a little bit about the EQ customer base of five years ago versus the EQ customer that you now see that you are pursuing. Where is it on that spectrum from, startup to SMB to enterprise, and where is it trending?

Lisa Picard: Wow, there's a lot packed in there. You know, in general the customer for that the sort of the longterm lease is the customer that absolutely wants control of the brand, absolutely wants control of the identity, you know, feels sort of an insecurity around security and IP and things of that nature. And I think that customer is needing more and more flexibility and, and I think that there's a tension of a product that satisfies that customer. And I think the spec suites, where we start to develop a product that has a little bit more normalcy to it, it's not like specifically for one of these high brands, but they can personalize it through sort of furniture and maybe some id, it still gives them the control. It still gives them the security that they desire. They still run their own server hardware, et cetera, to essentially control that whole loop. I do think that product is actually easier to digest because it's on a shorter term basis, not the two, three year, but more so the five to sevens, just because you don't need to amortize all of the improvements during the whole life of the lease. The flexible product is rather unique because you're seeing a lot of customers that come into a market, they want to test a product or our test the service and they don't want to make a long term commitment, but they might. So what's pretty exciting is that it's the whole notion of what the pop up store did for retail, right? A lot of brands wanted to test a location. They wanted to test a product with a particular marketplace. And then they ended up building out a store. And this is something that is unique and different. It's not just sort of the executive suites model from the last cycle ago where you had people who could retreat to their garages or retreat to their kitchen. These are real businesses that are comprised of 10 to 20 people in a location and they can't retreat to anything but they need a real presence even in market instability. So we're seeing a demand for flexible product across all business types. What's interesting is in West Coast markets it's probably driven a lot more just because the nature of that tenancy in those markets are a bit more dynamic. In the markets that have the more kind of legacy tendency, whether it be sort of Chicago or New York, we still see the drive of longterm leases, the control and maybe the leadership of those organizations grew up in a little bit more sort of a traditional sense. So I do see sort of a bifurcation by region, of tenant needs or tenant desires. I've seen just even in the last couple of years, some of the trends that are happening in the west and also Boston, Boston is a little bit kind of like "the west of the east", you see some of the trends start to kind of migrate from West to East.

Mark Gilbreath: We've touched on Washington REIT and British Land, and I'll throw out Tishman and Boston Properties as other examples, they've all stood up brands of their own now. Should we anticipate an EQ in-house brand for any of those variants of flexible office solution that you just walked us through?

Lisa Picard: Well, we're definitely developing products. You know, we have a brand as ourselves, as just an organization that's highly responsive to the marketplace. What we've been really focused on frankly, is just the identity and the brand of locations in the community that's developed at a location. And so we see buildings as brands. I think the operating component to it, you know, we've had success with partners. I don't know, like per se, if we're going to really spend a lot of money and energy on building the brand of a flex product, because I think the awareness point really becomes around the location. But I do believe that we're all like in this really sort of tumultuous time that the channels for finding product is changing. And I think there's several ways in which the marketplace is developing and we'll probably find at some point in time we need to elevate the brand to kind of have a voice in that marketplace. But right now, as the marketplace hasn't fully evolved, you know, there isn't one place where you can go and procure your space. And will there ever be, I'm not sure. But based upon that, I think the winner in that, that's going to cause us to really shape the way in which we communicate to the market and express ourselves. But right now it's still pretty focused on location. Location is still the very dominant driver for tenant selection and then it's the products at that location. So we hope to have a variety of products that are available to the customer at each of the locations,

Mark Gilbreath: If what some of what the customers are looking for is flexibility and fun and fast. Yeah. As you reflect on the traditional channels that you have been beholden to or depended on to acquire customers, is there a tension there? Right. If the interest financially of the tenant rep for example, is to try to affect the longest term, largest fee transaction possible, how does that create a tension with regards to your pursuit of what you want to see happen in your assets and let's talk about channels in general. How do you see that unfolding?

Lisa Picard: Yeah, I think that any time there's an intermediary, there's always an inherent tension. People have talked about whether it's WeWork or a marketplace or whatever that might disintermediate the owner. And, you know, disintermediation implies that you actually had a relationship with your customer. And our industry has not really developed that, largely just because we were bond holders, right? We really focused on our collateral. And now I think you'll hear every owner talking about a desire to be customer focused, but then they'll migrate to, you know, talking about the asset and the property. So I think as we talk about the shifting channels, the consumer is just demanding a different channel that's more transparent, that gives better speed that provides a comparative analysis that is clear on pricing. You know our traditional channel has done everything to obfuscate that, right? Because the lopsided information definitely benefited the owner and there really wasn't choice. So I think organizations that actually deliver a good product, that is desired, the customer's going to pay a premium for it. And particularly if it's frictionless. I see channels, you know definitely shifting from traditional broker networks, they're still very, very dominant, to also the flex operators. You know, in our current model, our partnering model, we've seen probably about 60% of the traffic come in through our partner's network. And they're utilizing social, they're utilizing their brand, they're utilizing their website, they're utilizing their presence. They're not even search engine optimizing. Their literally utilizing social and word of mouth. And I know in the past when we've attempted to really deliver to the market a unique product, you know an office building, that needed to raise a different level of awareness, not through traditional broker channels, we sought to actually get the awareness of the product through influencers, like literally influencers in the marketplace, who would talk about it. So I think you're going to see more of those types of channels with unique work venues that really are satisfying the desires of the worker reach a new channel presence. And then I think there's a bunch of players that are fighting out marketplace, and they're all trying to kind of create a seamless way in which you can do comparative analysis and then hopefully transact. But if the residential market is any indicator, you know, we still don't have the ability to transact on residential. I think both the house and the workplace are emotional buys or emotional purchases. And I think most people have kind of focused on the smaller purchases in the office market, call it the monthly lease or the annual lease because it's less of a risk then a 10 year deal. But I think you're going to see this space evolve a lot and there's a lot of money being thrown into this marketplace, largely just because it remains a serious consumer friction point.

Mark Gilbreath: Do you think the market's ready for digital deal execution? Digital transactions?

Lisa Picard: I think the market's ready for it. I think the owners haven't really figure out how to simplify the transaction. I mean, if you think about it like the OTAs, the online travel agencies, have all kind of created a really simplistic way to kind of transact. But buying an airplane ticket from one versus another is no different. You know what to expect when you buy the airplane tickets. I think when you secure a lease for a years time or five years' time or what have you, there's a lot of subtleties in terms of what you're given and what you're not given that there needs to be some standards set or some expectation of what the consumer gets before you can transact. So I think Mark, you and I have probably talked about this a bit. I think it's going to be more of an OpenTable model where you get to review buildings, the ambiance of the environment, and then you secure the transaction offline, right. By going and imbibing and paying your meal ticket at the end of the meal.

Mark Gilbreath: One of the things that has inspired us, LiquidSpace about the OpenTable model that you cite, is that it's actually two things. One, it's a marketplace in and of itself. I can go to OpenTable and search for a table for the two of us tonight in San Francisco at 7:00 AM and see restaurants. But it's also a technology platform for the restaurant, that have a direct engagement path that's right on their own website.

Lisa Picard: That's right. With a lot of user user information too. When I walk into the restaurant, they know a lot about me and my patterns previously of what I've liked or not liked. So the service for me, it gets better.

Mark Gilbreath: Absolutely. But they are creating in essence two channels. They're creating a marketplace channel where they draw customers to restaurants because they've aggregated all the restaurants in one place. But they are also equipping every individual restaurant that uses their platform to have a direct channel. As you think about, you know, Willis Tower for example, or an EQ office as, as "the property is the brand", as you said earlier. Can you envision, you know, with a network of influencers, praising the merits of Howard Hughes (an EQ property) or praising the merits of Willis Tower, could you envision that property itself and its web identity becoming a place that people go to directly? Would you want to embrace them directly?

Lisa Picard: I would. I would love it. I think ultimately each one of these are a place and they have established that already. I do think that there's gotta be some way in which the consumer can kind of compare that offer with another. Because taking it in isolation, it's the reason why we don't necessarily go directly to the restaurant's website. I mean we, we might if we been there before and we've made a reservation previously and it cuts to the chase. But we're often utilizing some service like Yelp or OpenTable to see, even if we've been to that restaurant before, has anything else new opened up that I might like even better?

Mark Gilbreath: One of the hallmarks of marketplaces, whether it's OpenTable or Airbnb or Ebay or others, is that they, by virtue of their network effects, they do tend toward this monopolistic outcome. Perhaps exiting an era where the brokerage community created a lack of transparency and control over how deals happen, are you at all concerned about the the emergence of just the next flavor of that, but in a digital guise?

Lisa Picard: Yeah, that one does weigh on me a little bit. But I think the only solution to that is by having multiple players. I mean you start to see Reserve and Talk, you know, come into the OpenTable space just as much as Yelp. And on travel you've seen Google and Amazon start to approach that. You know if you were the airline industry where you didn't have as many boutique and small players, you can all get together, the seven of you and sort of tell the OTA what price you were going to pay for the transaction. But when you have so many players and it's so fragmented, like what's happened in hotels, it's very difficult to do. The only thing that you know can help you is if there's multitude of players as opposed to just one. So I've been a big advocate of putting some weight behind several of these guys and helping them all improve their ability, because my organization is ready to kind of take on a digital presence. We're just waiting for the right one. I think we can speak well to that audience. It's just that, to your point, you can't put all your eggs into one basket because it does become monopolistic and they do get to control, not dissimilar to Amazon.

Mark Gilbreath: Well maybe as a final topic, I'd like to get your pulse on urgency. This market feels like it's accelerating or at the very least, there's a tremendous amount of buzz in the headlines about Flexible Office and the that's amplified by prognostications from folks like JLL talking about how 30% of enterprise portfolios might trend toward flexible in the next decade or so. Just last week, in fact on this show, I was speaking with Robert Teed who runs Workplace at ServiceNow, and I put that question to him. "Robert, how much of your portfolio can you envision going this route (Flexible Office) and how soon?" And he said he sees a world of 40 to 50% of his portfolio. And when I followed up and asked, what's the gating constraint on that? He said it's, it's purely availability and he then cited the slow pace of change of institutional owners who he thinks can win this game. How much urgency do you feel is needed? Can you afford to be a follower? Do you need to be the innovator or early adopter? Do you think someone's going to run away with the game? Let's wrap this up with an expectation of how fast this has to play out for you to be the winner that you want EQ to be.

Lisa Picard: I think that there's been a sense of urgency, you know, more around finding every opportunity to place more flexible product and other products within the real estate. I think what's going to be fascinating, cause I do agree that the market is fairly sizeable. I think every time a lease turns over, a tenant is gonna look for that opportunity, to drive some of it to be more agile and more flexible. We hear that mandate from a lot of large organizations. I think the limitation is going to be quite frankly, that there isn't enough space to do it. And you know, when you look at what's going to be available largely because of the exclusives that exist and some of these exclusives prohibit landlords from actually opening their own model, let alone bringing in another provider to the building, I think that that's going to be the limiter frankly to the growth of the model. Honestly we look for any avenue within existing buildings, but most buildings have an operator. And early on, most of those operators negotiated exclusives. I think some of the smaller guys had been bought out and some of the smaller positions are actually getting bought by larger guys, so they actually control the building. So I think that, you know, that is going to be the limiter and you're not going to be able to do brand new space in doing these sort of short term leases.

Mark Gilbreath: Do these exclusives, where they exist constrain you on putting spec suite inventory into an asset?

Lisa Picard: Not spec suites. It's only serviced models.

Mark Gilbreath: Well, Lisa Picard, thank you very much. I wish you the best of success. We're cheering for EQ. As I said at the top of the call, you've been far and away the most outspoken change agent amongst your class of institutional owners. And so we're all excited to see how you drive change and how this plays out for your firm.

Lisa Picard: Thank you, Mark. It's been fun.