“I don’t think we’ll ever go back to what we had before.”
“I don’t think we’ll ever go back to what we had before.”
That’s what Barbara Corcoran thinks of commercial real estate’s future. In Part II of Business Casual’s interview with the star of ABC’s Shark Tank and real estate mogul, she makes several bold predictions about the ways commercial real estate come out of today’s pandemic and recession.
Chief among them? Compromise is the new open floor plan. Barabara says that today’s widespread WFH will illustrate the futility of giant office spaces, while also highlighting some of the difficulties of remote employment. That puts a few lucky commercial real estate players in pole position.
What else does Barbarba see in her crystal ball? Fewer bank foreclosures than you might think. A renewed appreciation for the layers upon layers of leverage in the commercial real estate market. Some unpleasant ripple effects of rent forgiveness. Retail’s death knell.
If you want to understand all of that, plus the important role the commercial real estate market plays in the broader economy...
Listen now. And FYI: This is the second part of a two-part interview. Go check out Part I, which centered on the residential real estate market, if you haven’t already.
Barbara Part 2
Kinsey Grant, Morning Brew business editor and podcast host [00:00:08] Hey, everybody, and welcome to Business Casual, the podcast for Morning Brew, answering your biggest questions in business. I'm your host and Morning Brew business editor, Kinsey Grant. And now, let's get into it.
Kinsey [00:00:20] So the last time I popped into your AirPods, I was speaking with Barbara Corcoran. You know her from ABC's "Shark Tank," where she serves as a judge and she's made 80 some-odd ideals. But she's also a real estate expert, and she's got the chops. She founded and eventually sold The Corcoran Group, which is one of New York City's most prominent real estate brokerages. So in Part 1 of my conversation with Barbara, the two of us dug into the residential real estate market. I wanted to understand how it's changing and adapting in the COVID-19 era. And if you haven't listened, I highly recommend you go check it out.
Kinsey [00:00:52] Now on to today. It's time for Part 2 with Barbara. And we're going corporate here. We're tearing apart the commercial real estate market to better understand how today's pandemic and recession are forever changing it, both for tenants and the businesses that rent from them. And there's a lot to cover in this conversation. So we're going to get in as much as possible. But I think there's one pretty obvious place to start when you want to understand how COVID-19 is changing commercial real estate. And that place is the office, because many of us who are lucky enough to be able to do so are working from home. And many of us might like it better than going into an office or even be more productive. And many of our bosses might be wondering why they ever paid rent for an office when things can get done remotely.
Kinsey [00:01:36] And the precedent is being set. After all, Twitter chief Jack Dorsey just let Twitter staff know that most employees will be able to continue working from home as long as they see fit. And I don't need to be the first to tell you, but Twitter has a lot of real estate. It employs thousands of people, many of whom may never return to working in an office with colleagues side by side. And that's just one example of what I think could become a widespread phenomenon. So today, Barbara and I are going to walk through the commercial real estate space and understand how it's differing today than, say, what it looked like three months ago. And we're starting with a question that I think is on a lot of people's minds. And that question is: Will our widespread work from home change the norm?
Barbara Corcoran, founder of The Corcoran Group [00:02:17] It's never going to go back. Look at it from both the perspective of the person holding the lease, a tenant. And I have a commercial lease where my office operates out of. Let me tell you, I've had the thought a number of times, gee, why am I paying that rent every month if my workers are happier at home? Why would I want that overhead when they're paying my overhead by working at home? That's the view of many people who have leases. Now, my lease is up for renewal. I'm in a lucky position, so I can really visit that, maybe cut my rent in half or maybe by two-thirds, and just open a common area with meeting rooms for my staff, if they prefer to work at home. Now let's switch to their side of the equation.
Barbara [00:03:00] When I query my people and say, how much are you missing each other? They're working at all different locations. They all want to see each other. They miss the work environment. But when I say, do you really want to come back five days a week? Guess what? The answer is, "No, but we'd like to be in two days a week." Well, that cuts my rent in half if I could do neutral space versus individual desk. So I think the workers are not going to be so eager to sit in traffic, to come to work every day. They can't help but to compare that to working at home and rolling out of bed, taking a half hour for breakfast, of being at their desk. Hey, everybody has had that experience. You can't forget that experience.
Barbara [00:03:34] I don't think we'll ever go back to what we had before, nor do I think people will permanently be working at home. But I think we'll have a compromise between those both extremes. And that will become the new norm, as people like to call it, or the change that we'll see coming down the pike.
Kinsey [00:03:47] What is the impact in terms of flexible workspaces? When you think about a WeWork-type company, is this a boom for them? That sounds like what you're describing would be something, you know, you rent a small office in a WeWork. You've got access to all of these different conference rooms and places to take phone calls. What do you see the future looking like for those types of companies?
Barbara [00:04:07] I think those companies serve a real purpose for the very small businesses out there. But I think once you have more than 10 employees, you want a home of your own. I think that's a natural way to feel if you have a business that's growing. So for the very small companies that really just need a desk or maybe two, and need occasional use of a conference room, I think that answers that need. But no, I think it's really more that people who have large commercial leases are going to take their square footage down—by a lot, and they're going to create their own neutral spaces for people to work in their own conference room, that looks like their business, is branded by their business, and looks sexy, and clients want to come in and meet with people there. So, no, I think those serve two different needs based on the size of the business.
Kinsey [00:04:50] Yeah. [chuckles] I'm sure WeWork will not be happy to hear that. That has been one of their big marketing points, [laughs] at least on my Twitter in the last couple weeks. So when we think about the change in square footage, do you see—are we just going to take giant office parks and cut each office in half and then get two people on the lease or is it new construction that's coming up? What does that look like?
Barbara [00:05:11] On the existing commercial arena, I do believe that rents will have to come down to accommodate people by a lot. I think the only way to tantalize people to take more space—and even that's a hard-pressed issue—is to really bring down rents.
Kinsey [00:05:26] Who stands to lose the most money in that scenario?
Barbara [00:05:29] Ultimately, the banks who are holding the mortgages on the property owners, because if the property owners don't get their rent or wind up with huge vacancies, there's not a chance that they won't be speaking to the bank immediately. And then the bank has to deal. So in the end, it affects of the entire financial community. But remember, the banks aren't in the business of owning commercial real estate. The last thing they ever want to do is close on a property owner, whether it be a home, but especially commercial. They'll jump through hoops rather than close. So they'll renegotiate their mortgage payments. But that's hard. It's hard. It's kind of like we're all in the same puddle. [laughs] We're all in the same problem together. And let's hopefully everybody will work together. But it all starts with the consumer and the demand for the space. And that's what's fundamentally changed.
Kinsey [00:06:15] Let's talk some about this idea of banks not wanting to close on a commercial property owner here. Can the same be said for residential? Would we possibly see a boom in foreclosures in residential real estate?
Barbara [00:06:27] Oh, we could. I think that's certainly feasible but it's dependent on the job market, on the unemployment rates. So if the job market continues to deteriorate and people can't pay their mortgage—because it's the first payment people will make. And of course, there's been moratoriums of three to six months, depending upon the state, on the ability of the bank to foreclose. They're not wanting to foreclose anyway, but they can actually not demand that you be evicted, even from a rental, for three to six months. I'm sure that will be extended whatever's needed.
Kinsey [00:06:58] I keep thinking about how interesting—and maybe interesting is a bit of a callous way to describe it—but how interesting this particular moment in economic history is going to be because there is widespread unemployment. But we frankly don't know for how long that lasts or when this, quote unquote, ends, how things will pop back to normal. I mean, obviously, they won't immediately. But, I want to ask you how we hit the play button again. And I'm going to do just that after a short break to hear from our sponsor. — And now back to the conversation with Barbara Corcoran. So, Barbara, how does this recovery start? And to you, what does it look like?
Barbara [00:07:33] I think certainly the recovery will happen sooner or later. We all know that. It's going to be so dependent on what goes on with the virus and so dependent on testing. And we all know that. The question is, is when we do recover, what will that look like? And I don't believe it's going to be a fast, rosy picture by any stretch of my imagination. I'm anticipating that half the retail stores will not reopen, because I walk my own neighborhood, I know the local merchants. It's an expensive neighborhood in New York I live in. But already, in running into a couple of merchants, more than half are not even going to reopen because they couldn't—they don't have the staying power.
Barbara [00:08:09] So the retail sector, even if the consumer is willing to jump out and go to the local restaurant again—fast—and I don't think people going to be so fast. It's a psychological change there; you've got to get really comfortable to go into a crowd. I think, you know, we all feel that way. We're all scared. It's a bad place to work from. But it's true. But these restaurants aren't going to open. I look at the retail spaces, think who's going to replace all those people? And I can't even come up with any idea. I own a building down in the West Village, a prime street, a phenomenal building. And I've never had a problem renting my space on the ground floor. I have two floors on the ground floor.
Barbara [00:08:43] Usually I have people when a lease expires and the tenant ever wants to move out. I have people banging down my door. Right now, I'm thinking of taking the value of that, cutting it in half, because on average, in New York City, what you get for commercial rent is exactly half of what you would get for high-priced residential. And I'm going to convert it into all tiny, little apartments on my ground floor, almost like the old SRO in days of old, because I'm trying to think of how the heck I'm going to make that real estate make money for me.
Barbara [00:09:13] And I really don't know what's going to happen along the streets of every town in America when—what use is going to be had for these street front locations? What's going to happen to them and how dramatically that will affect the small mom-pop landlords throughout America, because half the landlords in America own one or two buildings. I think we all think of them as big conglomerates. They're not. They're people that put their life savings, got an investment property, and their livelihood now in older years depends on it. And those people going to be greatly affected. It's almost kind of like the new unemployed people that will come rolling down the pike.
Kinsey [00:09:49] Right. Two things I want to hit on here first. I think that the New York example is such an interesting one, because in New York, especially in the West Village, right near where I live myself, you can say this used to be a store. We're gonna make it an apartment and every 20-something is going to want to live there and it's going to pay an exorbitant amount of money to live there. I can speak [laughs] from experience, but if you're talking about a retail space that is now on lease that is sitting there empty in the middle of America in a strip mall, that isn't going to have that same option. That owner doesn't have the same options that you have.
Barbara [00:10:24] Well, they have the option to it turn into residential space because usually on top of every commercial space are apartments. That's the typical arrangement across America. So they could convert it to street-level apartment living. Not very appetizing for the tenant who's looking for a pretty view, but still, it's at least some use of that commercial space. You know, I'm really racking my brains: What else can people do? I haven't come up with anything, and I have a great imagination.
Kinsey [00:10:49] So what about every headline we've been reading about businesses and people who rent for residential not paying their full rent for the month? We saw it in April. We're recording this on the last day of April. I am sure we will see similar headlines in May. The businesses are just withholding rent or paying what they can and not paying all of it. Explain to me more the domino effect when that happens, beyond just the tenant saying, "I'm going to save a little bit of money right now because I frankly don't have the funds to pay it." But then that trickles up, no?
Barbara [00:11:23] It definitely trickles up. And when you see some urban areas like LA, where rent stabilization apartment rents have been frozen, period. Picture that as background—a foundation for what's going to happen. When you look at New York City, where a landlord cannot evict a tenant now for nonpayment of rent. So if a tenant says, "I'm not paying my rent for three months, there's nothing a landlord can really do about it legally." Maybe get even later. But, it's basically they're helpless. But now look at a market like that and have 10% of your tenants provide proof that they can't afford to pay their rent. A lot of people don't realize that tenants are asked to provide proof. I have about 10% of my tenants looking for rent reductions.
Barbara [00:12:05] I'm happy to work with them in every way that I can. But I really want proof that they're on unemployment, because I had a couple last week who called and really wanted to reduce their rent by a third, and when I questioned why, they said they didn't think it was worth that much anymore. And when I questioned, did they lose their job? No. They're both gainfully employed, making a lot of money. I'm like, what's wrong with this picture? [chuckles] Tenants are kind of having the sense of right to hold back on the landlord.
Barbara [00:12:29] But now to your pointed question—what happens then? Let's say a quarter of a landlord's tenants don't pay their rent. Most properties in urban areas are leveraged roughly 50%, meaning we have 50% mortgage. A landlord cannot afford to pay the taxes. The taxes will not be paid. The taxes pay for the teachers. The landlord can't afford to pay the mortgage. The mortgage company takes a hit because every landlord's going to renegotiate with their mortgage company. It's a balancing act.
Barbara [00:12:58] I know that with my income-producing properties, I can afford to carry roughly 20% of no rents for about six months and still turn on the lights [laughs] and pay for the heat next winter. But if it goes beyond that, of course, I'm going to be calling my bank and begging forgiveness and hustling them as hard as I could to take the pressure off. And that's what's going to happen. Then the question is, what goes on with the banks? You're gonna have to get a finance guy. I don't worry about that side of the equation. [laughs] It's above my pay grade. But I imagine that's not a pretty picture, either.
Kinsey [00:13:29] Do you think most brokerages have that kind of idea of how long they can last with X reduction in rents?
Barbara [00:13:36] I think every sophisticated property owner knows exactly where those numbers hit. I think the mom-pop-type landlords, which is the great majority of landlords in America, probably don't. I have a business hotline, 888-Barbara. And all of the landlord calls I get from little, tiny landlords across America are always asking the same question, and they're thinking is this: Should we put our life savings to shore this building up or should we walk away from the building? That's what everybody comes down to. I send them to their bank to negotiate. That's my advice every time. Be respectful, be reasonable, offer something versus nothing, get the bank to work with you, talk to your local municipality and see what they're doing for taxes because everybody's dealing right now.
Barbara [00:14:19] But I don't want them walking away from what they've killed themselves to earn over their whole lifetime. Nor do I want them putting their last pennies of savings into the building. No, they have to straighten out the problem. But, you know, small landlords are not sophisticated. The properties they only see as almost an extension of their home. The tenants they see as almost an extension of their family. So they're very close to it and they tend not to make rational business decisions early enough. And that's what I try to push them to do. But I think that's a typical M.O. of a property owner here in America.
Kinsey [00:14:48] Should these owners be taking a more calculated approach to making these decisions? Is there danger in treating your tenants like family, beyond just not taking the zoom-out view?
Barbara [00:14:59] It's interesting. I could argue the other side of being a sucker and doing everything in your power to take care of your tenants. There was a guy in Brooklyn. A plumber—was he a plumber? I'm thinking he was written up in our local paper or I don't know if you caught the headlines about a month ago. I had to love this guy. And what he did is he owned something like 600 apartments, a plumber. He just groveled his whole life, working his butt off, owns all these properties and declared: One whole month—don't pay me any rent. Because he loved his neighborhood. What a guy.
Barbara [00:15:28] I mean, do you think those tenants will ever, ever leave that guy when this thing is over? No. He owns them. He owns them body and soul. So is that a smart business for him? You bet it is. But here's a guy who could afford to do it. A lot of landlords are not in that position where they could afford to do it. And when they're not, they have to be rational. Do the math on it and figure, OK, how do we solve this? How do we skin this cat before our backs are against the wall and we're thinking we have to give up our building.
Kinsey [00:15:52] So it varies from owner to owner. Do you think, let's say, net-net, is it a positive or a negative when you think about the interests of both the building owners and the renters? This concept of moratoriums on evictions and pay-as-much-as-you-can rent. We talk about who wins, who loses. But if you had to say net good or net bad, what would you say?
Barbara [00:16:13] Well, being a landlord myself, I'd have to say it's net good because it helps out the tenants. And this is a time where you have to help the next guy. Nobody's gonna get through this by being greedy. Nobody. I mean, it's just the worst thing for what's going on. And you have to realize too, when landlords negotiate rents with tenants, they're not forgiving rent. The rents aren't going away.
Barbara [00:16:35] To simply roll oving the rent—roll over—roll over—how do you say that word? [Kinsey laughs] They're going to roll over that rent to a later date when they're going to collect it.
Barbara [00:16:43] They extend the lease. They make up for those lost payments later on when the tenant's able to. And I think that's—I think that's how it should be.
Kinsey [00:16:51] OK. And I want to pivot shortly here to talk about the retail-specific aspects of the commercial market. Shopping centers especially, you've made some very interesting comments about where they were when we started this, where they're going now. And I want to dig into that a little more and a little deeper in just a second after a quick break to hear from our partner. — And now back to the conversation with Barbara Corcoran. So talk to me more about this idea of where retail real estate is going. We've read endless stories about how the mall is dead, and the retail sector is dying, and everything is online, and what have you. But, is this just going to accelerate that death knell that has been ringing for retail real estate for quite some time?
Barbara [00:17:30] I agree with you that everyone's been declaring the retail market dead for a long time. Whether it be the big Neiman Marcus' declaring recently bankruptcy or whether it be the little shop-and-stop kind of guy, you know, [chuckles] with a little laundromat there, in a little shopping area in Middle America. Everybody's been saying that retail is dead. And I think this pandemic has made those last resisters who'd like to shop at malls learn the important lesson—you could get everything better and faster and cheaper on Amazon. And so how married are people to the shopping experience? How much do they want to go through the mall and enjoy the shopping experience and compare things when they could order on Amazon, return what they don't like [laughs] anyway?
Barbara [00:18:14] I mean, there's still a place for it. But if I had to say, on a scale of one to 10, what's desired now versus only four months ago, I would say it's decreased by 50%. So is this the final blow to the retail sector? Yes. Will there always be retail fashion brands that can weather any storm because people just have to go in and be part of that culture? Of course they will. But it's a question of ratio of how much consumers desire, how often they'll go, how much money they'll spend in the mall versus what they'll do online. I think everybody knows the answer on that one.
Kinsey [00:18:52] I have to imagine that there will always be—and to make another New York-specific [chuckles] reference—there will always be a Bleecker Street, a street where all of these up-and-coming retail companies that are likely digitally native and born online want to have physical space, to have people come in and interact with their products that they otherwise wouldn't be able to. Can we expect that to continue or has this stopped in its tracks? Will there always be exceptions?
Barbara [00:19:19] They're the perfect exceptions. Yes, they're the new Madison Avenue with the premium brands of yesteryear. You know, Madison Avenue was carried by premium brands for probably 15 years, most of them losing money daily, having these extravagant stores on Madison Avenue. But they had to have it there for their brand. They had to be seen there. And they needed the ego satisfaction of knowing they were in the epicenter and they had arrived. But no, that will return in smaller footprints. You won't get the large Barneys and Neiman Marcuses. You get the smaller boutiques, but they will return. And if you hear of one, please send one good one to me, because I would like to rent my Greenwich Village space to them. [Barbara and Kinsey laugh]
Kinsey [00:20:02] I'll send out an email to all of my sources, yeah. OK. You know, we've talked about some of the more specifics here, from industry to industry, from tenant to tenant, from owner to owner. If you had to encapsulate how important the commercial real estate market is for the broader economy, is there a way to do that? If so, how would you describe it?
Barbara [00:20:22] Yes, there is. And I actually looked up—if I could find it in my notes, I don't know where I put it—how many billions of dollars it is. But whatever we've invested in the commercial real estate market, the amount of leverage in it is about 25%. So for every $4 billion that represents a commercial market, all the investors that have put their confidence in those markets, the individual developers who have ownership in those buildings and generally the majority ownership, are in it with the banks for about another quarter. And so how important is that? It's enormously important because it represents such a large sector of the real estate market.
Barbara [00:21:02] And when something folds, it creates unemployment. What about, you know, just let's say one building in midtown? I'm not suggesting that a building, midtown Manhattan will fold. Everybody will take their percentage of loss. But if one building were to fold, think of how many people that employs—just that one building in terms of just sheer maintenance staff. Usually these office buildings have maintenance staffs of 80, 100 people, you know, supporting families when they get back home. It affects everybody, from the maintenance guy to the fancy guy at top who's worth a couple of billion dollars and isn't sweating it, but starts sweating it when something like that happens.
Barbara [00:21:36] No, it's a very important part of the marketplace. I would argue that maybe not as important as the residential market because that's more direct and affects people's lives and foreclosures, and pain and hardship, and unemployment. But on the fancy end of the market, it's crucial. It can't take that kind of beating, really.
Kinsey [00:21:56] Yeah. When I started with the residential conversation, I asked you to use three words, three-ish words [laughs] to describe 2019, 2020, and 2021 for the real estate market. I would love for you to do the same thing with commercial. If you had to say 2019, how would you describe the commercial real estate market in one word?
Barbara [00:22:14] Solid, easy. Solid, just solid.
Kinsey [00:22:17] 2020?
Barbara [00:22:19] Scared to death.
Kinsey [00:22:20] And 2021?
Barbara [00:22:21] Who the heck knows? [Kinsey laughs]
Kinsey [00:22:23] Lots of parallels between residential and commercial there. Interesting. So when we think about everything going on today, obviously you've painted the picture of residential being probably where we feel it more. But do you think one has suffered more than the other? Is it just a matter of case-by-case basis?
Barbara [00:22:42] I don't think either has suffered yet because it hasn't come out in the wash.
Kinsey [00:22:47] OK.
Barbara [00:22:47] I think when it does, I think the commercial sector will have a tougher time than the residential by far. But that depends entirely on when we could come back to the job market for all of us. And what happens with the unemployment rate, right? It really does. So, you know, ironically, all of these economic markets come down to one thing: When will we have good testing, when will we have a vaccine or cure? That's what it comes down to. I mean, all the rest is almost trimmings of conversations that are fun to have, but without that problem being solved, the economy will not bounce back. Period.
Barbara [00:23:21] I don't think everybody is going to be—in fact, I'm certain—not everybody is going to be hired back. I couldn't find an exception to that answer on anybody I've surveyed. And I think that that plays out in the economy of a slower crawl, you know, to the top of the hill. It's just a little harder because I don't think people can assume they'll get their job back, even when this is all over. I think companies are using it as excuse to clean house and get themselves in shape and get themselves well-tooled for tomorrow's new norm, as everybody's calling it.
Kinsey [00:23:51] Right. And so much of what you've said in this conversation has come back to testing—the importance of testing beyond just your experience in real estate, your expertise there. As someone who has been successful in business in general, are you bullish on the possibility of that testing becoming widespread in any meaningful way? And if so, how long do you think it'll take?
Barbara [00:24:12] Listen, I don't think anybody could answer that. What I can say is I have absolutely no confidence in the federal government's ability to do it because they haven't taken responsibility for it. I don't think it's gonna happen governor-by-governor testing in our own state. I mean, the poor governors have been crying out for testing. They can't get their hands on it. When it's been handed out, it's been not unilateral. A lot of the testing has failed. So it's a hodgepodge. It's really a mess. The whole scene is a mess. The only thing that could cure it is the federal government doing a nationwide, perfectly orchestrated means of testing our people.
Barbara [00:24:49] And do I have any confidence that that's going to happen? No, because I find that in leadership, the basis of leadership is to take responsibility, whether it's yours or not. I mean, I've run, you know, I built my own business. I help many businesses run their business. And I can tell you, the only businesses that are going to make it through—make something good of this, and I'm very close to all my businesses—are the great leaders who take responsibility and say this is my problem, not this is the pandemic's problem. This is my problem. What am I going to do about it, and hit the floor running.
Barbara [00:25:19] If we could have that attitude on the part of the federal government, we could cure anything. Hey, come on, we're America. What happened there? Why aren't we able to cure this, you know, to get testing? It doesn't sound to me like—I don't know—doesn't sound to me like it should be an impossibility. But it needs a concerted effort and it needs great leadership that's going to take the responsibility and say, I'm going to do it. Here's how we're going to get it done. That's how we're going to do it.
Kinsey [00:25:43] Right. So in your inner circle of business leaders, who do you admire the most or what traits do you admire the most? Other than taking responsibility and accountability that you were talking about before?
Barbara [00:25:55] Empathy, I would say, because the businesses that are doing the best that I've invested in, and there are many of them whose profits have skyrocketed, are not only led by people who are great leaders, but they're people who welcome change. I would say the ability to see change as an opportunity—and I know that sounds Pollyanna on first blush, like what kind of opportunity? But the truth is, they see it as opportunity. And then the other very important part is they have empathy. They know how to walk in the shoes of the guy who's going home and has to feed his family.
Barbara [00:26:28] And that's front and foremost in their head. I had to admire the guy who owns Wynn's hotels. Tough son-of-a-gun by reputation, businessman. OK. But when this pandemic hit, he told every employee, because he could afford it, "Don't worry about a thing. You have full benefits, full pay until this whole thing is over. Just go home." Done. The whole hotel industry, gambling industry, went away overnight and he kept everybody on payroll and full benefits with no end date. Don't ever worry. I got you covered. That's the kind of leadership in whatever you could afford to do that inspires people and gets people through bad times.
Kinsey [00:27:07] Are there any specific strategies for some of these smaller businesses that don't have the giant balance sheets of hotel / casino? Any specific strategies they could implement beyond just have empathy, walk in the shoes of the people whom you employ?
Barbara [00:27:20] Well, having empathy is meaningless unless it turns into an actionable item, I would think. So some of the things that the great I'll cite—I can cite many of them—some of the things they've been doing is rather than cutting staff—like they needed to cut 25% of the employees just to keep the doors open—instead, they ask everybody to take a 25% pay cut across the board. That screamed equity to everybody and everybody was willing to work on that. Everyone could cut their expenses no matter how poor they are, I guess, with the help from the landlord and from the state and the government, could cut by 25%. And that's exactly what they did. Many of them went out into charity work. I know I had Gray and Lace is a woman's design company, makes great inexpensive clothes online for young women that love them. But what they did is they turned the whole production to making face masks and giving them away to [indistinct] the medical community.
Barbara [00:28:10] And then in the process, they realized that people might pay for designer masks. They started producing designer masks. And the sales have gone through the roof. So they started from a charity position and moved right into let's take advantage of this position. And they're endeared to their customers for that; they turned it around so fast because they had the—not only the attitude, but the experience of making masks fast.
Kinsey [00:28:33] Right.
Barbara [00:28:33] So, yes, it's about, you know, the cool word is pivoting. I call it surviving like, OK, guys, the old rules don't apply. What the heck can we do now? And no matter how small your business is, you can always think of something if you're willing to get committed to the fact you're going to stay in business, no matter what, you're going to stay in business, you owe it to your employees. And let's think collectively what we could do together. And those are—it's the same M.O. with every great business out there. It never changes in that regard.
Kinsey [00:29:00] I like thinking about it as surviving instead of pivoting. Pivot is one of those words that has been co-opted in so many ways in such a negative connotation too. So survival is the name of the game. I guess that makes as much sense as anything. Barbara, thank you so much. I have learned a ton [laughs] in this conversation. I'm preparing for a move and I feel like now I know everything I need to know about real estate, especially in my home market of New York.
Kinsey [00:29:26] Thank you so much for listening to this episode of Business Casual. Are you missing Barbara's answers to the famous Business Casual wheel? Well, not even she could escape without answering them.
Kinsey [00:29:36] And we even made her do it on Instagram live! So if you want to hear her answers to questions like which shark would she switch portfolios with or what is she reading right now? Even the best party she ever threw? Head on over to our Instagram to check out the answers. We're on IG @businesscasualpod, so go check us out and I will see you next time.