How offices will change after COVID-19

Yahoo Finance’s Brian Sozzi and Alexis Christoforous speak with Walker & Dunlop CEO WIlly Walker about what we can expect from the future of office buildings after the coronavirus pandemic.

Video Transcript

BRIAN SOZZI: As government officials seek to find safe ways to reopen economies across the country and the world, offices are looking at ways they can help reinforce social distancing and make people feel safe going back to their workplace. Walker and Dunlop is one of those companies, and joining us now is CEO Willie Walker. Willie, good to speak with you again. I was-- I was looking over some of your notes. And one takeaway for me is, wow. The cost of doing business post-pandemic is going to go up, perhaps in a big way.

WILLY WALKER: Good morning, Brian. As it relates to the cost of actually operating an office building, I would just say that the added expense of putting in social distancing as it relates to workstations, potentially new walled offices are-- are-- are considerations that every landlord needs to take into mind. I would say walking into my office building this morning, it was quite interesting.

There were signs up as it relates to wearing face masks. When I got to the elevator bank, there were lines in the lobby that allowed people to space. And then when you got into the elevator, there were four lines and only four people per elevator car. So owners and operators of office buildings across the country are being proactive and taking steps to make sure that the safety of their tenants is job number one.

ALEXIS CHRISTOFOROUS: Willie, break down for us what some of those costs might be. I mean, I'm thinking just straight up thinking of our open newsroom at Yahoo Finance. I'm imagining I'm going to see some plexiglass in our future, maybe an HVAC system. What are some of the costs, and-- and who would bear the brunt of that? Would it be the landlords, the building owners themselves, or those individual companies?

WILLY WALKER: So Alexis, it's the individual companies as it relates to inside the four walls that you're leasing. So for instance, Walker and Dunlop has almost 40 offices across the country. And we're going office by office doing an inventory, first of all, of who's going to come back. We are unfortunately forced to be back in the office space.

And so we want to know which employees at Walker and Dunlop want to come back in. So in the office I mean, right now, we have 40 employees. If all 40 say they want to come back into the office, that presents a certain set of challenges and costs to us. If 10 say they want to come back in, well, we have four-walled offices for all 10 of those people in this footprint.

And so I think it really does matter who's coming back, what your occupancy levels are going to be. And then you'll take a look at what the actual cost of buying the plexiglass, setting up new offices, closing down common areas, et cetera. And then obviously, the shared coffee pitcher is probably something that's going to have to be replaced across most offices in the country. And people will bring their own Starbucks in the office, but they won't be sharing that coffee pitcher anymore.

BRIAN SOZZI: And Willie, I have no problem with putting a coffee pot on my own desk. I'm all for it. I'm ready to rock and roll right now. But I do want to talk about your business a little bit. I was going through your last earnings call. You have close to $3 billion in student housing exposure in terms of financing. What does that mean? A lot of schools may not come back in the fall. How does that impact your business?

WILLY WALKER: So Brian, the California State School System as you know, yesterday announced that they're going to come back, if you will, electronically in the fall. And we have a lot of student housing loans on properties that are co-located next to those university campuses.

There are two things. One, there has been a big push on universities to think about setting up quarantine areas on campus, so they're taking dormitories and turning them into quarantines. Purdue has announced they're going to do that.

If university systems take capacity on campus offline, that's going to drive a need for more off-campus housing. The second thing which I think is very interesting is that if the campus-- on-campus housing is shut down, many students still want to go back to their campus communities.

Many students still want to be out of mom and dad's, if you will, top floor bedroom, and go back and actually take online classes from a student housing property. And so I would say to you that even though the Cal State system shut down, many of the properties that we have loans on will have occupancy in the fall.

And if the on-campus housing is completely shut down, that's only going to give people the opportunity to go for that off-campus housing. So I think it's a little bit too early to say that student housing come September is going to have major problems, because it will be interesting campus by campus and the number of students who actually end up going back to enroll.

BRIAN SOZZI: Willy, real quickly before I let you go, are you seeing any trouble collecting from these colleges?

WILLY WALKER: Trouble collecting from the colleges. So our owners who borrow from Walker and Dunlop, they have their own tenant base of students, and so they don't have master leases typically with the actual university systems.

But as you know very well, Brian, many of the university systems, I think the number that came out on the Cal system yesterday was they've already lost $350 million this spring since they shut down and sent students home. So there's some real financial pain coming to the university system, particularly if they don't open up in the fall.

BRIAN SOZZI: Tough stuff. Willy Walker, Walker and Dunlop CEO, always good to speak with you. Stay safe, and we'll talk to you soon.

WILLY WALKER: Thanks, Brian. Thanks, Alexis.