Unless you’ve been living under a rock, you know that generative artificial intelligence, or gen AI, is the next big thing in tech.

And that is enough to make it one of the most closely watched strains of business for the highly challenged commercial real estate industry — more specifically, for office landlords. With acres of space to fill and with loans on buildings coming due, it’s a key potential tenant for that space.

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Which is why some eyebrows in real estate went skyward when it became known that none of the major property brokerages was representing OpenAI, the company behind gen AI giant ChatGPT, in its New York office quest. 

It was represented instead by San Francisco-based Raise Commercial Real Estate, an 8-year-old boutique brokerage that specializes in AI and other cutting-edge tech companies and their real estate needs. OpenAI’s search came to an end in October when the company signed a lease for 90,000 square feet at the Puck Building in SoHo. By the time it actually did the deal, Newmark was OpenAI’s brokerage house.

Then, on Oct. 1, JLL (JLL) announced its intent to buy Raise. JLL said Raise’s cloud-based platform would enable it to serve clients demanding the latest in tech-related services. Justin Bedecarre, co-founder and CEO of Raise, would become JLL’s head of Americas leasing innovation, reporting to Andy Poppink, JLL’s CEO for markets advisory and onetime captain of Stanford University’s basketball team.

According to data from JLL senior analyst Chris Pham, JLL repped a little less than 60 percent of all AI deals in the San Francisco Bay area from 2023 through the first three quarters of this year. So, the acquisition of Raise enhances JLL in this area.

Beddecarre and Felipe Gomez-Kraus, a former Raise colleague and the executive managing director in brokerage in JLL’s San Francisco office, hopped on Microsoft Teams in early December to explain what an AI-empowered world for commercial real estate might look like.

This interview has been edited for length and clarity.

Commercial Observer: What happened with Raise Commercial, and what are you doing now?
Justin Bedecarre: Raise was celebrated for many years as a technology-powered commercial real estate brokerage and, as of a couple of months ago, we joined forces with JLL, so now we’re all one JLL.

Is this a kind of ‘If you can’t beat em, join em’ situation?
Bedecarre: We saw an opportunity to have the best of both worlds by joining forces with JLL. We complement each other very well with JLL’s scale and our technology platform, and so it was very much a positive sum mentality by coming together.

So what are you doing now for JLL?
Bedecarre: We are doing a lot of the same things, but at a bigger scale. We’re serving a lot of AI companies with our platform and with our broker services. We’re scaling our technology platform across the leasing business, and so it’s a lot of the same but at a bigger scale. And, with what we’ve done in the Bay Area in particular — commanding, you know, almost two-thirds of AI companies, helping them to client build and manage offices — we’re off to the races.

Felipe Gomez-Kraus: When we were building Raise, it was going to allow us to serve clients in a digital-first collaborative workplace, which was the first of its kind. So, coming together with JLL was also in order to make it so that JLL clients can benefit from having a collaborative workplace where they can interact with the market and with their teams nationally and globally. When Justin says we’re doing the same, it is really to bring that platform to the brokerage teams and the clients of JLL, and to continue to provide the type of service that should be happening in 2025.

Did you guys find that JLL among the other real estate services firms was ahead in terms of understanding tech and cutting-edge startups and what they needed from their real estate?
Bedecarre: Without question — both on the decision and execution around getting technology to our brokers and our clients, but also in the clients we serve. We cover more market share around AI companies than any other firm. It’s definitely the best of both worlds in terms of what we’re able to do here with all of our now-JLL colleagues to serve the best companies in the world.  

Isn’t it risky for a big legacy firm like JLL, which is dealing with the overall reduction in demand for offices, to make this kind of acquisition?

Bedecarre: I would posit that it’s a risk for a quote-unquote legacy firm to not try to innovate and meet the continued demands of companies that are digital first or digital native; and that are all feeling the impacts of technology writ large, including that of AI.

So I would say that stagnation is a reversal of fortune for most legacy companies. One of the reasons we came together with JLL, and were so happy to do so, was the very forward-thinking nature of the company. And that’s also reflected in the practice groups that are developed to really understand the needs of occupiers of tomorrow, landlords of tomorrow, and how to best position both assets and the occupants for the right match.

Gomez-Kraus: The foundation of your question is the reduction in demand. I would actually counter that and say that, particularly around AI companies, the demand has gone up. We’re really looking at the future and the growth areas for office occupancy, and that’s very much the case with AI coming. 

But what with traditional, non-tech companies like banks and other financial and professional services firms reducing their demand and trying for fancier offices, and since work from home isn’t entirely going away, can AI replace traditional office demand?

FGK: You describe the flight to quality, which is absolutely what we’re seeing. Workplaces today, more than ever, need to be well located in the right transit lines, amenitized properly in the common spaces. And the workplaces themselves need to be thoughtfully designed for how work happens today. We believe that that will be a part of the way that the world works moving forward.

But, with that, I often hear it said, “You build a church for Sundays.” That means that as long as you’re bringing together people for any period of time to do whatever their best work might be, it should be in a space that is well designed, whether it’s individual head-down work or collaborative spaces, as well as other things that come into play as a reward for talent. 

You talk about legacy firms, financial services, accounting firms and the like — they are competing for talent with a broader range of companies. I don’t think it is in many of those companies’ best interests to be in secondary markets or submarkets and in Class B, B-minus buildings. It’s demonstrated that this is one of the factors to hire and retain talent. 

So we don’t think that AI is going to replace the reduction in footprint. But companies that existed pre-pandemic, they are absolutely rightsizing and flying to quality. Another thing that’s happening is that there’s a resurgence of net new companies that are being built, and those companies that are being built from today forward are being funded with an eye toward the velocity and intensity and the creativity that happens when people are together and they’re not forced to start as they were in the pandemic, fully remote.         

Lately JLL’s stock has been on a tear. Do you think that’s at least in part due to the notion that JLL is ahead of the game in implementing AI and understanding what’s going on in high tech?

Bedecarre: There are a lot of factors that go into why we joined JLL: the culture, the vision, and how the firm wants to serve its brokers and our clients and our teams. It’s been incredibly positive; the talent density is extremely high at JLL. And we serve the best companies in the world, both investors and landlords and tenants.

What do you think is the most important thing landlords need to know in attracting cutting-edge tech companies to their offices?

Gomez-Kraus: There’s a variety of ways that you could position an asset to make it more attractive for the types of companies that are excited to bring people together to work, and that want to make those workplaces inspiring and reflective of their culture. This is outside of the building’s location, which obviously is paramount and is even more important today.

In 2019 and 2020, when we were at sub-3 percent vacancy in San Francisco, there were buildings in secondary submarkets that might have been on an island, but had to be considered because there was no real space available of any size downtown. I mean figurative islands that are away from transit routes, which allow San Francisco to draw people in from the East Bay or the South Bay.

The things that landlords can do from an amenitization standpoint — bringing in thoughtfully curated food and beverage options, health and wellness — is incredibly important to this young cohort and the companies that want to keep these, let’s say, AI-specific researchers who do very heavy work.

It’s in a company’s best interest to make it as comfortable for that person to spend a long period of time at the office or in its surroundings, which means not just a one-to-one desk ratio, but rather spaces where that person can go, be inspired and motivated, sit in a nontraditional work space, collaborate with colleagues in scrum rooms, or in what they call “me space” versus “we space.” You see from a design standpoint it’s looking a lot more like a hotel lobby than a traditional office.

This smacks of the startup environment in 2014, `15, and `16, in San Francisco, where there was ample access to funding for the right companies. That fuels headcount growth and office needs, though today’s hybrid work formats change some of those leasing decisions.

I think that term length is important. For the smaller-sized offices, I think they should try to do everything to reduce friction, and that can represent itself in creating spec suites that are well designed, furnished, and reduce friction to get in, but then also keeping term length on the shorter side. As they become larger, and want to both plant a flag and have more visibility, that could be in the same building or in a neighboring building.

Isn’t energy use also an issue, especially for tech companies?

Bedecarre: Not necessarily for your typical tech company, or even largely AI companies. Your typical office user might be manufacturing things in the office. Some of our clients build satellites that are literally in space right now. They need extra power to build the thing in their office.

When you’re thinking about tech companies and AI companies, their large language models  and whatnot are done off site, in separate facilities. Those spaces are designed specifically. But for the typical office user versus an AI company, there’s not an exceptional difference in need for power.

Now you guys were in the middle of OpenAI’s search for space in New York. Can you talk about that?

Gomez-Kraus: We can’t speak about individual clients, but I think one of the things that you’ll see across the talent density for companies that are building the technology of tomorrow is that we’re seeing again what we saw in the runup to 2019, 2020 — where the talent density in the Bay Area, and the level of competition for that talent, causes many of these companies to go look in other incredible cities like New York and London and elsewhere.

How important is planting a flag in New York for AI in general?

Bedecarre: I don’t think having a space for its own sake anywhere in particular is important to these companies, but the drivers for putting an office location anywhere are absolutely related to the available density of talent — and potentially to the density of the firms and organizations to which they are selling and where they’re finding their partners.

Gomez-Kraus: The only  thing I would add to that is the concentration of investment dollars. After the Bay Area, New York provides the highest concentration of funding going to startups and AI companies. That’s what creates these ecosystems.

What is there specific about AI that you think landlords should know?

Gomez-Kraus: There are a lot of similarities between the occupier profile of an AI company and what was seen when the Googles and the Metas of the world were in their run-up. They were building a technology of tomorrow. 

They firmly believe that people are better together for the philosophy of what they’re developing, the creativity that is born in it. They are committed to delivering excellent spaces, not only for them to inspire the people that they have, but also from a recruiting standpoint, because, make no bones about it, much of this is rooted in the war for talent, just as it was in 2013.

One of the ways that a company could demonstrate their commitment to their employee back then — beyond the stock options — was truly to have a holistic approach to their health and wellness, their experience, their commutes, their comfort. A lot of that is reflected in the quality of the workplaces that they deliver.

One last thing: What is going on in San Francisco? It seems like we hear that San Francisco has more vacant office than any central business district across the country, and its problems still linger.

Bedecarre: If you know anyone who has the capital to invest, there’s probably not a better bet than San Francisco.

I care a lot about the city and the region as a whole. We’ve had to reinvent ourselves many times over. Looking back from the dot-com crash, every time we rebounded. And that’s very much the case now. More people are coming back to the office. Those numbers just keep on going up. Also, the political environment has improved immensely for businesses to be starting and growing in San Francisco.