I could give a flying fuck about the welfare of corporations or executives and board members. However, I learned a hard lesson in 2007-2009 about the impact of mortgage backed securities on the...
I could give a flying fuck about the welfare of corporations or executives and board members. However, I learned a hard lesson in 2007-2009 about the impact of mortgage backed securities on the underlying economic system. This reference was compiled in response to the at that time residential mortgage backed securities crisis. https://www.calculatedriskblog.com/2007/07/compleat-ubernerd.html
I would love to see a finance/commercial real estate nerd weigh in about the financial impact of massive defaults on commercial real estate loans. My guess is that it is not going to be pretty.
I hate it. Also, I very much wanted bankers to go to jail in 08-09 like there were prosecutions during the Savings and Loan Crisis. Honestly if there was going to be be a bailout, it would have...
I hate it. Also, I very much wanted bankers to go to jail in 08-09 like there were prosecutions during the Savings and Loan Crisis. Honestly if there was going to be be a bailout, it would have been much more fair to put the banks into receivership and install brand new leadership.
Problem is that most of what they did was perfectly legal. The repeal of Glass-Steagel really did a number on our economy. From 1933 to 1999 commercial banks and investment banks had to be...
Problem is that most of what they did was perfectly legal. The repeal of Glass-Steagel really did a number on our economy.
From 1933 to 1999 commercial banks and investment banks had to be separate. Then it was repealed by a Republican congress and Democratic president, and suddenly the banks could merge and use mortgages as collateral in investment schemes.
I haven't read it since 2008 but former finance professional, now journalist and blogger Susan Weber writing under the pen name Yves Smith did a writeup of the crisis called Econned. I would...
I haven't read it since 2008 but former finance professional, now journalist and blogger Susan Weber writing under the pen name Yves Smith did a writeup of the crisis called Econned. I would actually love to hear what professionals in banking and finance think of her analysis.
Thanks to the crisis, I learned what derivatives are, among other things. I was fascinated. But it isn't my field and I honestly haven't thought about it much since that time.
Offices are 12% of commercial real estate. The impact from vacant offices is not as large as what happened with residential real-estate in 2007-2009. That exact same blog you mentioned actually...
Offices are 12% of commercial real estate. The impact from vacant offices is not as large as what happened with residential real-estate in 2007-2009.
That exact same blog you mentioned actually has a nice write-up about commercial real estate:
However, there are many other CRE sectors in addition to office and retail: lodging (hotels), health care, warehouses (including self-storage), manufacturing facilities, food and beverage establishments, power and communication, amusement and recreation (Disneyland!), religious, transportation and more.
Do you have a retirement or are you living paycheck to paycheck? I ask because you should absolutely care about the welfare of publicly traded companies and privately held companies. It's all...
Do you have a retirement or are you living paycheck to paycheck? I ask because you should absolutely care about the welfare of publicly traded companies and privately held companies. It's all interconnected. If you're saving for retirement, you probably do it through any number of financial instruments such as index or mutual funds.
If the stock market is down because of these domino effects, then folks who were going to retire end up working longer thus not leaving the labor market and stunting upward mobility.
When you go to your financial advisor, they tell you to put your money "here, here and here" because those give you the greatest return.
I don't want to write a book about this topic and with the various aspects of our political economy that I care deeply about, I totally could. Short answer, no I don't have much retirement savings...
I don't want to write a book about this topic and with the various aspects of our political economy that I care deeply about, I totally could.
Short answer, no I don't have much retirement savings and what I do have is in whole market stock funds and US treasuries.
My tone came from long-standing frustration with various trends in the business world, including but not limited to sky-rocketing pay for CEOs compared to 60 years ago, To big to fail bailouts, and wars while being told that social security is unsustainable, lack of Antitrust enforcement, Monopsony by Amazon and Walmart, and much more. I'm too skeptical of the outcome of social unrest to be a complete revolutionary but I am not happy, nor prosperous under the current system. If I had a lifestyle like my grandfather did including a fully funded corporate pension I might feel more positively toward the megacorps.
When you go to your financial advisor they also assess your risk adversity. They won't tell you to put your money "here, here and here" in ultra risky/volitile stocks if you want a safer/safest...
When you go to your financial advisor they also assess your risk adversity. They won't tell you to put your money "here, here and here" in ultra risky/volitile stocks if you want a safer/safest option/strategy. Real estate has always had boom/bust cycles so people looking for "safe" investments shouldn't be too heavily invested in it.
All that downtown real estate and tangible property like the buildings will never be valued at $0. Even if they "lose" $800 billion, they'll still have hundreds of billions+ in assets.
I also wonder just how much REITs own of the typical office space in cities compared to religious entities (any search that includes "REIT" plasters the first few pages with how to invest in an REIT so I couldn't find anything on it). The Catholic church is said to be one of the largest land owners in NYC. Why, exactly, should I be worried that their balance sheet loses a 0 but still has ten or eleven other zeros behing the first number? The Church of Scientology or its LLCs owns a whole bunch of property in Clearwater and St. Pete. Forgive me if I don't care that they take a hit to their books. The Mormons, LDS, Catholics, Scientoligists, etc own A LOT of land--most of it in prime down towns where the office buildings are. None of these will affect people's retirement portfolios.
With that being said, if a company like Oracle (randomly picked) could make just as much income by allowing WFH for office staff while also lowering their expenses by leasing less office space wouldn't that (in theory) raise their stock value? They'd have a stronger P&L statement with higher profits due to lower costs.
A good financial advisor will also set up the pathways to avoid drawing down your accounts during down years via things like reverse lines of credit. The difference over a 10-20 year period can be...
A good financial advisor will also set up the pathways to avoid drawing down your accounts during down years via things like reverse lines of credit.
The difference over a 10-20 year period can be massive.
A lot of cities fund most of their budgets through property taxes on commercial leases. This is going to be a crisis for city governments and municipal bond holders.
A lot of cities fund most of their budgets through property taxes on commercial leases. This is going to be a crisis for city governments and municipal bond holders.
Hence the drive on the articles to say WFH doesn't work and everyone needs to get back to the office! Don't ever wonder who drives those clickbait articles.
Hence the drive on the articles to say WFH doesn't work and everyone needs to get back to the office!
Don't ever wonder who drives those clickbait articles.
Agreed. I'm UK based and they've tried to do the same thing here. Half the government probably own property in the city. They just want their excessive rent back.
Agreed. I'm UK based and they've tried to do the same thing here. Half the government probably own property in the city. They just want their excessive rent back.
You and I both. I'm south east England and commute in to London. My days used to consist of a coach, a tube and a walk to get to the office amounting to anything from 1h45m to 2h45m on a bad day....
You and I both. I'm south east England and commute in to London. My days used to consist of a coach, a tube and a walk to get to the office amounting to anything from 1h45m to 2h45m on a bad day. That's each way. Plus an 8 hour day. I did that 4 days a week for years.
Now I have it flipped. I work 8 hour days, more productive, save a bomb on travel and have work life balance. The days I go to the office I now travel in work time, fuck 'em. They owe me just over a decade in blood, sweat, tears, and time I could have spent with my kids growing up.
They get the best of me when I can WFH at my own pace and weedle my work and life together. I understand face to face meetings and work presence but at the same time, too much is hindering. Not enough then it let's people who need to be managed fall through the cracks.
Our company recently stated all employees within 50 miles of certain office hubs have to return in September. Even if you were originally hired as a remote employee. Even if no one on your team...
Our company recently stated all employees within 50 miles of certain office hubs have to return in September. Even if you were originally hired as a remote employee. Even if no one on your team even reports to the same office as you. They keep trying to say it’s to “encourage chance encounters”.
Wish they’d stop lying to us and just say they care more about their real estate portfolio than employees.
We went fully remote early in the pandemic and haven't looked back. It expanded our applicant pool (when we were hiring... sigh), enabled presence in more time zones, and allowed sales to be...
We went fully remote early in the pandemic and haven't looked back. It expanded our applicant pool (when we were hiring... sigh), enabled presence in more time zones, and allowed sales to be reasonably local with prospects. It's been a huge win for the company, in terms of rent savings, and for the employees.
I understand the desire to bash on corporations (I personally hate working in office and would rather WFH), but we should be reasonably concerned about what happens if $800 billion in investments...
Exemplary
I understand the desire to bash on corporations (I personally hate working in office and would rather WFH), but we should be reasonably concerned about what happens if $800 billion in investments goes belly up.
In the US, many cities and towns use business property taxes as their primary revenue source. If activists are in favor of cities losing a significant amount of tax revenue, there has to be a replacement model put forward. Otherwise public services and employment will suffer.
I don't think this is the right conclusion. Corporations aren't saying "work hybrid/in person while we phase out needless office assets", they're saying "come back to the office". Articles like...
I don't think this is the right conclusion. Corporations aren't saying "work hybrid/in person while we phase out needless office assets", they're saying "come back to the office".
Articles like this are, in my opinion, thinly veiled propaganda. It's supposed to invoke the sense that offices are just a necessity of work, when the reality is that we can save time commuting, free up high quality real estate, and generally treat workers more humanely if we phase out a lot of these buildings. This cannot happen overnight, but so far I've seen little to nothing from the big-name corporations about this kind of approach.
I think my comment is being misunderstood. Corporations can get bent for all I care; WFH is the future. My concern is about local governments dependent on taxing commercial real estate. Someone...
I think my comment is being misunderstood. Corporations can get bent for all I care; WFH is the future.
My concern is about local governments dependent on taxing commercial real estate. Someone else responded that a land value tax would solve this problem, and I agree with that.
The other problem is many cities have downtowns stuffed to the gills with offices and coffee shops and nothing else. If those offices aren't there anymore, we should absolutely be encouraging more housing and office conversions.
I resonate with converting them to housing. Currently many cities have zoning restrictions that prevent development of new housing and this has created a scarcity. Not sure if the revenue would be...
I resonate with converting them to housing. Currently many cities have zoning restrictions that prevent development of new housing and this has created a scarcity. Not sure if the revenue would be equivalent but this is a win for the people too.
I think the problem is that converting an office building to an apartment building isn't as simple as it seems. The way the buildings are laid out are different, the way the infrastructure in the...
I think the problem is that converting an office building to an apartment building isn't as simple as it seems. The way the buildings are laid out are different, the way the infrastructure in the building is vastly different and has different requirements, and there are tons of codes and regulations that residential builds must meet that commercial buildings don't. And vice versa.
I agree that the space should be repurposed and housing is a great thing to move them to. But I wonder if it might not be cheaper in some circumstances to just knock the building down and build a new one, rather than try to retrofit an existing one that was build entirely differently. I really have no idea.
Unfortunately a lot of commercial and office real estate isn’t really set up to be converted easily to apartments/condos. Big issue is plumbing layouts. In an office setting they are centralized...
Unfortunately a lot of commercial and office real estate isn’t really set up to be converted easily to apartments/condos. Big issue is plumbing layouts. In an office setting they are centralized to a few spots on each floor. The entire building would need to have plumbing retrofitted. Doable but not a simple task and is quite costly.
The same owners who own the companies also own the real estate. Forcing the workplaces to keep renting ensures high utilization and thus high rents for everybody.
The same owners who own the companies also own the real estate. Forcing the workplaces to keep renting ensures high utilization and thus high rents for everybody.
Easy. Tax the land, not the occupiers of the building. Then the landowners (who may or may not own the building too) have a very strong incentive to sort out whatever building is on it so it's...
Easy. Tax the land, not the occupiers of the building. Then the landowners (who may or may not own the building too) have a very strong incentive to sort out whatever building is on it so it's covering the cost of that tax. An office standing empty is going to cost the landowners money. If making it valuable again means tearing down the existing building and putting up housing/shopping/community stuff/vertical farm/power generation then cool. Personally I'd rather the state just took ownership of the land and did that but whatever works for the actual people in the city, works.
Georgism wins again. I agree that a land value tax is a great way to encourage efficient use of downtown cores. I hope this crash in valuation encourages more dense, mixed-use development. The...
Georgism wins again. I agree that a land value tax is a great way to encourage efficient use of downtown cores. I hope this crash in valuation encourages more dense, mixed-use development.
The state owning all land is a really interesting approach too. I think some regions in Asia just do extremely long-term leases to building owners?
In Singapore almost all land is leasehold. Mostly 99 years (all public housing and a significant chunk of private housing) with some 999 year leaseholds. Only 10% of the land is freehold. We have...
In Singapore almost all land is leasehold. Mostly 99 years (all public housing and a significant chunk of private housing) with some 999 year leaseholds. Only 10% of the land is freehold. We have very robust eminent domain laws.
I think its fucked up to just accept that capital holders get to gold our economy hostage. Why is it that individuals are supposed to be paragons of personal responsibility and perfectly manage...
I think its fucked up to just accept that capital holders get to gold our economy hostage.
Why is it that individuals are supposed to be paragons of personal responsibility and perfectly manage their lives, but we can't allow business to suffer from the consequences of their inability to adapt to changing demands in the work marker?
Also, reminder, a lot of these companies used the availability of cheap financing and federal loans to renegotiate their leases or mortgages. Some of them correctly decided to decrease their spend...
Also, reminder, a lot of these companies used the availability of cheap financing and federal loans to renegotiate their leases or mortgages. Some of them correctly decided to decrease their spend and office space size, and some of them stuck their head in the sand and decided the old wisdom was always good and ignored all the signs that there wasn't going to be a return to the office.
Change isn't overnight but the writing was on the wall even early in the pandemic. So not only is it an inability to adapt, it was a refusal to just open their eyes. I'm of the same opinion, we should let them fail.
See my comment here. I don't care about big business. I care about the practical realities for local governments that get all their funding from taxing offices that won't exist anymore.
I don't care about big business. I care about the practical realities for local governments that get all their funding from taxing offices that won't exist anymore.
That's fair, and I do sympathize with those concerns. It's just a frustrating reality I see play over again and again. Big business isn't allowed to fail, but people are.
That's fair, and I do sympathize with those concerns. It's just a frustrating reality I see play over again and again. Big business isn't allowed to fail, but people are.
They could convert office space into apartments. There's never a lack of demand for housing in big cities, and plenty of these offices are owned by the exact same entities that have been driving...
They could convert office space into apartments. There's never a lack of demand for housing in big cities, and plenty of these offices are owned by the exact same entities that have been driving housing prices through the roof.
I’ve heard that the practical (splitting plumbing, electrical, hvac, etc) and safety/residential-code regulatory hurdles for converting an office building into apartments can be enormous, to the...
I’ve heard that the practical (splitting plumbing, electrical, hvac, etc) and safety/residential-code regulatory hurdles for converting an office building into apartments can be enormous, to the point where it’s easier to tear a building down and rebuild from scratch.
Engineer here, it depends on many variables, to include when the commercial facility was made, its last renovation, and the current codes/requirements of the local. Most commercial facilities have...
Engineer here, it depends on many variables, to include when the commercial facility was made, its last renovation, and the current codes/requirements of the local.
Most commercial facilities have higher requirements than residential, just different configurations. The HVAC would likely be the biggest hurdle, not electrical.
However, given the cost an access concerns around steel and concrete, it is still likely that gutting a commercial facility to the studs and revamping it into living spaces is still economical; more so the local governments could subsidize the action, as well.
Better, I've seen malls repurposed into indoor parks, with municipal functions, non-profits, and other public-type works get moved into them so that people can get all of their governmental business done in an indoor cooled area that has access to lots of amenities. I still hate malls, but learning to repurpose old buildings is likely the best way forward instead of letting them go to blight or trashing them.
For context, I sit on the board of an affordable housing non-profit in my city, and interface with residential builders. We primarily build residential Converting a mall to public sector usage is...
Exemplary
For context, I sit on the board of an affordable housing non-profit in my city, and interface with residential builders. We primarily build residential
Converting a mall to public sector usage is way easier than converting a commercial building to residential. They often both fall into commercial code. For converting commercial to residential, it's not just the trades that you have to deal with (although all of them are also heavy considerations, including the requirement for per-unit metering for electric and water, electrical code requirements where every unit needs its own sub-panel and circuits configured to meet local code, plumbing needs that exceed an office building that typically only has a couple bathrooms and a breakroom per floor).
Partitioning a floor of an office is the easy part. But meeting fire code, where every bedroom needs a secondary method of egress (eg a window of sufficient size and opening), might even make so that the floor plate of the building just can't be used for residential if it's either too large or too small. Square high rise office buildings that you commonly find in cities tend to have much larger floor plates (in the 25k+ sqft range) than what you could find in a residential building. This would be about 160ft deep assuming a square footprint. Apartments can really only be so deep (about 40ft) into the building before you're forced to have rooms with no natural light (which again, can't be bedrooms). Making units wider directly decreases the number of units you have on each floor, which increases the cost per unit and per sqft. This is why most apartment buildings are built in a "cereal box" shape, to account for the depth of a living unit without wasting space on a useless core. Purpose-built apartment building architecture will deal with this by having a courtyard or wings. But you typically don't find this in commercial buildings, which don't have this need.
So yeah, it's possible. But in most cities (including ours), it's cost-prohibitive. It's cheaper to tear down and rebuild in order to maximize floor usage and unit density. And even if you had a developer who would be willing to take on that cost and risk, the rent of units in such a building would be sky high because of the high development cost.
This is coming from corps and real estate owners... it's not hard to do. They don't want to do it because they don't want to become landlords to people. It's way easier to rent to a Corp and get a...
This is coming from corps and real estate owners... it's not hard to do. They don't want to do it because they don't want to become landlords to people. It's way easier to rent to a Corp and get a solid check each month.
It’s definitely hard to do with current housing regulations in most markets. Personally, I’m of the kind that we should just relax those. Yeah, maybe there’ll be a units in converted building that...
It’s definitely hard to do with current housing regulations in most markets. Personally, I’m of the kind that we should just relax those. Yeah, maybe there’ll be a units in converted building that has no windows. Sucks, but it probably beats homelessness for the tenant, or otherwise they wouldn’t rent it to begin with.
...while inexpensive perfunctory conversions are seductive, building codes are written in blood... ...residential requirements for fire protection, egress, ventilation, and more can be very...
...residential requirements for fire protection, egress, ventilation, and more can be very different from commercial uses, generally with very good reason, just one example of which is a window in every sleeping unit...
While I largely agree, there's a whole lot of zoning that mandates single-family homes, and it isn't written in the same sort of blood you're talking about. The lines are definitely red though.
...while inexpensive perfunctory conversions are seductive, building codes are written in blood...
While I largely agree, there's a whole lot of zoning that mandates single-family homes, and it isn't written in the same sort of blood you're talking about. The lines are definitely red though.
If you want to keep it, then office buildings can at most be readily expensive penthouses, more likely just continuing as offices as you’d have to demolish them and rebuild to convert into...
If you want to keep it, then office buildings can at most be readily expensive penthouses, more likely just continuing as offices as you’d have to demolish them and rebuild to convert into residential housing.
It is hard, though. Or at least it's expensive. My first year as an apprentice, I worked on a full gut renovation of a skyscraper being converted from offices to a hotel. Sure, they saved...
It is hard, though. Or at least it's expensive. My first year as an apprentice, I worked on a full gut renovation of a skyscraper being converted from offices to a hotel. Sure, they saved themselves building a structure, but in return the internal demolition process was slower, they had to cut a second staircase through the entire building, etc. These things can be prefabbed or streamlined on new construction. Weird things constantly come up in old buildings that need to be resolved.
It's very possible, and it's a little less wasteful, it's just that someone has to want to pay for it.
O I'm not saying it's not a walk in the park, but it's not like they've gotta start from ground zero, and I'm not really talking about the buildings that are offices but a fresh coat of paint is...
O I'm not saying it's not a walk in the park, but it's not like they've gotta start from ground zero, and I'm not really talking about the buildings that are offices but a fresh coat of paint is the only thing holding them together, I'm more talking about the newer sky scrapers that costed millions to build.
Even newer skyscrapers come with challenges. It's still going to be a full gut renovation, because none of the walls will be in the right place or up to residential standards (sound and...
Even newer skyscrapers come with challenges. It's still going to be a full gut renovation, because none of the walls will be in the right place or up to residential standards (sound and fireproofing). This means workers going in and demolishing everything, then removing debris one elevator load at a time. Lots of new buildings rely on post-tensioned cables for structure, so you can't go drilling holes willy-nilly through the floor; every single spot you want to put a hole in that floor, for new plumbing or electrical or HVAC, has to be checked first. Maybe you could have technicians go in and map the exact locations of the cables in every floor before you try and design the layout, but they'd have to be incredibly accurate, and again - it's labor. And if you do it that way, it means that the architects and mechanical designers have to spend more time doing their jobs, because a cable in the wrong place means a toilet has to move means a whole bathroom is off. Etc.
I'm not arguing against it, just trying to explain that it IS a big deal and there's a reason it isn't done more often.
Fair enough, it's a good amount of work, but in the grand scheme of things... companies paying for an empty place vs just converting it to apartments or condos seems like a no brainier.
Fair enough, it's a good amount of work, but in the grand scheme of things... companies paying for an empty place vs just converting it to apartments or condos seems like a no brainier.
It could be a worthwhile venture if demand for office space continues to decline and they never rent out the building. If demand remains the same, or rebounds, or they are still able to rent out...
It could be a worthwhile venture if demand for office space continues to decline and they never rent out the building. If demand remains the same, or rebounds, or they are still able to rent out those offices (even if demand overall declines, there will still be demand for some offices) then the conversion will have been a very costly conversion for nothing.
The NYTimes had a good article about what the conversion from office to residential actually entails, and all the problems with doing it -- but also some successful examples of the conversion:
Believe it or not, some people WANT to live in cities! I'm in NYC. I don't choose to live here because it's near work; I choose to live here because it's where the culture is. Spent half my life...
Believe it or not, some people WANT to live in cities!
I'm in NYC. I don't choose to live here because it's near work; I choose to live here because it's where the culture is. Spent half my life in the suburbs and I'm not eager to go back.
I love the options of things to do in a city, but don't actually like people enough to want to continue to live in one again. I've spent about half my life in the city and half split between...
I love the options of things to do in a city, but don't actually like people enough to want to continue to live in one again. I've spent about half my life in the city and half split between suburbs and "the countryside"; while I'm not a country-boy by any measure, small town life in an exburb has it's appeal. More space for my hobbies, less hustle and bustle of a city, still close enough to have all the city options with a little bit of planning to account for getting to them.
Small towns have a lot of appeal to them, spent this past weekend in one visiting friends, went to a bat sanctuary and a peach festival, was a lot of fun, didn't get stuck in traffic once.
That said, having spent time in NYC, it's a bit of an outlier. There's no city like it and 99.9% of large cities don't even compare to the amount of things to do/culture of NYC.
Why would I not believe it? I don't understand the relevance of your response. Obviously some people want to live in cities and some people don't. But WFH has been widely reported to have brought...
Why would I not believe it? I don't understand the relevance of your response. Obviously some people want to live in cities and some people don't. But WFH has been widely reported to have brought about urban flight. The people who want to live in cities most likely already do, whereas a large portion of people who want to live in rural areas were living in urban areas exclusively due to jobs. Obviously there are exceptions on both sides, but it's much rarer to have to live in a rural area.
Why capslock though? Obsiously, there are people that want and don't want to. Me, on the other hand, I moved out of the city, finally not bound to it by workplace. But mine and your example are...
Why capslock though? Obsiously, there are people that want and don't want to.
Me, on the other hand, I moved out of the city, finally not bound to it by workplace. But mine and your example are irrelevant to the question that op asked. Honeslty, I wonder too, if WFH caused decreased demand or not, but for that we need some data, not anecdotal examples.
There were a bunch of articles I read that claimed that was why Sydney's housing prices didn't drop during the COVID lockdowns, despite WFH substantially increasing demand out in e.g. Katoomba. I...
There were a bunch of articles I read that claimed that was why Sydney's housing prices didn't drop during the COVID lockdowns, despite WFH substantially increasing demand out in e.g. Katoomba. I didn't bookmark the articles since it wasn't anything anyone seemed to disagree with and there's a bunch of evidence supporting the idea - like, Sydney's housing prices were still going up (I checked like realestate.com.au here and there at the time and that seemed to support it, I suppose you could check that on archive.org), and demand for PCs has grown during the pandemic due to (among other reasons) people wanting to buy both a home PC and a home-work PC (I'm pretty sure Linus Tech Tips said that?). Plus, most people I knew who were working from home had some awkward work setups, so the whole idea was 110% plausible and very truthy.
The counterfactual would be that Sydney prices went up because Sydney prices are fucked for political reasons, not because of any particular reason, per se. Or perhaps that this trend was specific to Sydney and other cities/countries don't like home-offices as much and just work in their bedroom or whatever.
My ire is not directed at anyone reading this, but why should we be concerned? I mean, seriously, why is it an issue if a huge REIT implodes? Or, in the case of New York CIty, the catholic church,...
My ire is not directed at anyone reading this, but why should we be concerned? I mean, seriously, why is it an issue if a huge REIT implodes? Or, in the case of New York CIty, the catholic church, which doesn't pay taxes and is the largest land owner in Manhattan, takes a hit on their balance sheet? They've privatized the gains for so long they can keep the losses privatized too. This is a known potential so any retirement fund heavily invested in REITs can only blame themselves. Besides, they'll only "lose" $800 billion if everything they have suddenly loses 100% value. It's a little harder to be concerned if, in reality, they "lose" $500 billion out of $800 billion which means they still have $300 billion in assets. Pity the poor $300,000,000,000 balance sheet.
Cities might be "destroyed" by loss of income. Countless small and medium towns I've travelled through have faced this issue for decades now. Maybe the interstate bypassed them, maybe their manufacturing plants shutdown or moved--you can pick 10 different reasons for 10 different towns. Some adapt, some don't.
Owners/landlords can chose to repurpose the buildings or sell them to someone else who will. They could always gasp lower rent to keep people/businesses around. The fact that most plazas would rather remain empty or half capacity instead of adjust rent is personally disgusting to me. They can adapt or go the way of the dodo. The potential $800 billion "loss" is completely on the owners/landlords and not the workers.
Even Detroit still isn't dead. Some parts have reverted to farmland, some are revitalized and some are still broken down. The population is no longer declining and has seen fractionally small increases in 2021 and 2022.
But here's the thing: The US population is pretty much going to decline unless we accept more immigrants--something anathema to one party. The Boomers will be dying off and the younger generations aren't having kids. The cities can start to try to adapt now or be forced to adapt in a decade or two.
I'm just so tired of anything that helps the working person gets labeled "socialism bad" (COVID relief, extra SNAP, student loan forgiveness, etc) but heaven forbid a big business has any kind of loss we better socialise their temporary dip in earnings while letting them keep their bonuses and never fix the tax loopholes they use (Automotive bailout, Wall Street Bailout, PPP loans with incredibly easy forgiveness qualifications, Airline bailout, bank bailout, etc).
If it was up to me, if the government needed to bailout a company, then they own that company forever and any profits go to pay down the national debt. I think companies would be more careful with...
If it was up to me, if the government needed to bailout a company, then they own that company forever and any profits go to pay down the national debt. I think companies would be more careful with themselves if that was the policy.
Absolutely. If a company is "too big to fail" than that sounds like a matter of national security, correct? If they, indeed, do fail and need a bail out then the government should get a percentage...
Absolutely. If a company is "too big to fail" than that sounds like a matter of national security, correct? If they, indeed, do fail and need a bail out then the government should get a percentage of ownership (and a seat(s) on the board) based on how big the bail out is vs assets that the company owns. They can set terms on gaining ownership back after paying back the bailout at the going interest rates with oversight for 5-10 years after completion of buy back to ensure it doesn't happen again.
Exactly. Putting a company into receivership is something we very much know how to do. If government bails a company out, government should take temporary or permanent ownership and leadership...
Exactly. Putting a company into receivership is something we very much know how to do. If government bails a company out, government should take temporary or permanent ownership and leadership should be replaced.
I was just thinking this as well. I'm glad that many organisations are opting for a hybrid approach to working, and that I and most of my friends are able to work from home at least a few days a...
I was just thinking this as well. I'm glad that many organisations are opting for a hybrid approach to working, and that I and most of my friends are able to work from home at least a few days a week. However, it's not lost on me that there is an awful lot of money wrapped up in the business landlord economy, to say nothing of the pilot fish businesses. That lovely little independent coffee shop just around the corner from your office? It's probably really struggling with lack of customers now. I'm quite nervous to see what is going to happen to the economy in the rest of the decade, thanks to this shift towards WFH.
Since the pandemic started, small businesses have increased in my neighborhood- the coffee shop that once was around the office corner is now a couple of blocks from my home. These mom and pop...
Since the pandemic started, small businesses have increased in my neighborhood- the coffee shop that once was around the office corner is now a couple of blocks from my home. These mom and pop businesses are thriving since things opened up. If those office high rises were turned into residences they would have booming restaurants near them, too, and not just during the week.
It is not like the people going to the office are not going to spend that money elsewhere. Specially many who don’t live in the city centers. You know where those $800 Billion go if people are not...
It is not like the people going to the office are not going to spend that money elsewhere. Specially many who don’t live in the city centers.
You know where those $800 Billion go if people are not in the office, to the local businesses in the suburbs and to online retailers.
Plus, these type of analysis fail to consider the wellbeing of the workers and the health of our societies and the environment. How much is worth an extra hour of free time, a happier workforce and neighborhoods, and a cleaner environment? Are we willing to pay a fraction of $800 Billion for people (all of us really) to have healthier lives? I'm not saying going to the office is bad - I'm saying going because it is a requirement is.
When homeowners took loans they couldn't afford in 2008 and prior, we let them suffer the consequences of their bad investments. We could have bailed out homeowners and prevented a massive...
When homeowners took loans they couldn't afford in 2008 and prior, we let them suffer the consequences of their bad investments. We could have bailed out homeowners and prevented a massive economic crash, but the idea of helping the "little guy" was completely unacceptable. Instead, we helped the banks and let people go into foreclosure.
Now, when faced with a similar economic choice, with the same general scenario but with different groups of people at risk of harm, I don't see why the priorities should suddenly change. Let the investors see the outcome of their risks, bail out the banks if needed.
See my comments here and here. I'm on the same page, companies should fail when they make bad investments. Market economies break down when anyone is "too big to fail". That doesn't mean we should...
I'm on the same page, companies should fail when they make bad investments. Market economies break down when anyone is "too big to fail".
That doesn't mean we should ignore impacts to the broader economy and city tax revenue when corporate property taxes massively shrink. I'm in favor of progressive tax replacements like a land value tax.
That's basically how citizen-based governments are supposed to work, yes. The issue isn't shortsightedness about what corporations losing on these investments means for city government funding,...
If activists are in favor of cities losing a significant amount of tax revenue, there has to be a replacement model put forward.
That's basically how citizen-based governments are supposed to work, yes.
The issue isn't shortsightedness about what corporations losing on these investments means for city government funding, the issue is that city governments are so reliant on corporations that it's better to be more pro-corporation than pro-citizen.
I am very much in favor of cities losing tax revenue. Governments in my area need to feel the squeeze on their budgets, they waste a tremendous amount on dumb events nobody goes to. Sadly, given...
I am very much in favor of cities losing tax revenue. Governments in my area need to feel the squeeze on their budgets, they waste a tremendous amount on dumb events nobody goes to.
Sadly, given past outcomes, it just means the critical services will be slashed and the boondoggles never even examined.
I could not give less of a shit and I'm heavily invested in commercial real estate too. The corporations should not own all the real estate, it should be owned by people.
I could not give less of a shit and I'm heavily invested in commercial real estate too. The corporations should not own all the real estate, it should be owned by people.
I lucked out (for a millennial anyways) and managed to invest during the last real estate downturn around 2012/13. I have no intention of selling and just want the passive income. I still pay the...
I lucked out (for a millennial anyways) and managed to invest during the last real estate downturn around 2012/13. I have no intention of selling and just want the passive income. I still pay the mortgages but my rent would cover it for a long while, even with rent stabilizing. Just trying to build long term roots for my immigrant family (I'm first generation born here and trying to break our cycle of living foot to mouth).
I hear you on being first gen immigrant and trying to figure out longer term stability in general: there's not a lot of people I can ask and all I'm looking for is breaking even most of the time....
I hear you on being first gen immigrant and trying to figure out longer term stability in general: there's not a lot of people I can ask and all I'm looking for is breaking even most of the time. Thanks for your insight :)
No worries! Yeah I have the same mindset. I'm not looking for short term high gains, just solid investments for my heirs. If they decide to sell later that's their decision.
No worries! Yeah I have the same mindset. I'm not looking for short term high gains, just solid investments for my heirs. If they decide to sell later that's their decision.
This, 1000 times. I really don't care if a bunch of real estate developers lose money. That money was all ill-gotten gains from paving paradise, anyway.
This, 1000 times. I really don't care if a bunch of real estate developers lose money. That money was all ill-gotten gains from paving paradise, anyway.
Not sure if this news was mentioned (link courtesyof HackerNews): https://www.bostonplans.org/news-calendar/news-updates/2023/07/10/mayor-wu-announces-residential-conversion-program Here's the HN...
Not sure if this news was mentioned (link courtesyof HackerNews):
Mayor Michelle Wu today announced the City will launch a new “Downtown Office to Residential Conversion Pilot Program,” a public-private partnership program to incentivize the conversion of underutilized office buildings to residential use in Downtown this fall.
Ok... i suppose we can then calculate how much we saved working from home from car gas, lunches, car crashes, transport ticket, etc. As a society. My guess this second amount is higher than 800...
Ok... i suppose we can then calculate how much we saved working from home from car gas, lunches, car crashes, transport ticket, etc.
As a society. My guess this second amount is higher than 800 milions.
The money is not lost... just redistributed from corporations and landlord to working people. As it should be.
The city is pressuring the company I work for very hard to make us all come back. They own three buildings downtown. Right now two of them are pretty much sitting empty in the third is maybe 10%...
The city is pressuring the company I work for very hard to make us all come back. They own three buildings downtown. Right now two of them are pretty much sitting empty in the third is maybe 10% full couple days a week. I wouldn't be surprised if the city threatened their tax credits and stuff like that. There have been small business owners blaming the company I work by name for for them going under or struggling.
They have tried to entice us to come in. That didn't work. Some departments are starting to require two days a week. For the most part though no one is budging. I was on one of the teams that required hybrid and I would just spend the day on video calls because I work with a lot of remote workers all over the country and people on teams that were not required to come in.
I feel the tide turning though and I think the pressure to come in is going to increase as the pressure from the city increases.
I could give a flying fuck about the welfare of corporations or executives and board members. However, I learned a hard lesson in 2007-2009 about the impact of mortgage backed securities on the underlying economic system. This reference was compiled in response to the at that time residential mortgage backed securities crisis. https://www.calculatedriskblog.com/2007/07/compleat-ubernerd.html
I would love to see a finance/commercial real estate nerd weigh in about the financial impact of massive defaults on commercial real estate loans. My guess is that it is not going to be pretty.
Why is the cause of and solution to every financial crisis make yourself too big to fail and socialize the losses?
I hate it. Also, I very much wanted bankers to go to jail in 08-09 like there were prosecutions during the Savings and Loan Crisis. Honestly if there was going to be be a bailout, it would have been much more fair to put the banks into receivership and install brand new leadership.
Problem is that most of what they did was perfectly legal. The repeal of Glass-Steagel really did a number on our economy.
From 1933 to 1999 commercial banks and investment banks had to be separate. Then it was repealed by a Republican congress and Democratic president, and suddenly the banks could merge and use mortgages as collateral in investment schemes.
I haven't read it since 2008 but former finance professional, now journalist and blogger Susan Weber writing under the pen name Yves Smith did a writeup of the crisis called Econned. I would actually love to hear what professionals in banking and finance think of her analysis.
Thanks to the crisis, I learned what derivatives are, among other things. I was fascinated. But it isn't my field and I honestly haven't thought about it much since that time.
Edit, I also learned a lot about the crisis from the respected real estate blog Calculated Risk. This resource they compiled was helpful. https://www.calculatedriskblog.com/2007/07/compleat-ubernerd.html
Offices are 12% of commercial real estate. The impact from vacant offices is not as large as what happened with residential real-estate in 2007-2009.
That exact same blog you mentioned actually has a nice write-up about commercial real estate:
https://www.calculatedriskblog.com/2023/04/a-few-comments-on-commercial-real-estate.html
Excerpt:
Thank you! You relieved my anxiety quite a bit.
Do you have a retirement or are you living paycheck to paycheck? I ask because you should absolutely care about the welfare of publicly traded companies and privately held companies. It's all interconnected. If you're saving for retirement, you probably do it through any number of financial instruments such as index or mutual funds.
If the stock market is down because of these domino effects, then folks who were going to retire end up working longer thus not leaving the labor market and stunting upward mobility.
When you go to your financial advisor, they tell you to put your money "here, here and here" because those give you the greatest return.
I don't want to write a book about this topic and with the various aspects of our political economy that I care deeply about, I totally could.
Short answer, no I don't have much retirement savings and what I do have is in whole market stock funds and US treasuries.
My tone came from long-standing frustration with various trends in the business world, including but not limited to sky-rocketing pay for CEOs compared to 60 years ago, To big to fail bailouts, and wars while being told that social security is unsustainable, lack of Antitrust enforcement, Monopsony by Amazon and Walmart, and much more. I'm too skeptical of the outcome of social unrest to be a complete revolutionary but I am not happy, nor prosperous under the current system. If I had a lifestyle like my grandfather did including a fully funded corporate pension I might feel more positively toward the megacorps.
When you go to your financial advisor they also assess your risk adversity. They won't tell you to put your money "here, here and here" in ultra risky/volitile stocks if you want a safer/safest option/strategy. Real estate has always had boom/bust cycles so people looking for "safe" investments shouldn't be too heavily invested in it.
All that downtown real estate and tangible property like the buildings will never be valued at $0. Even if they "lose" $800 billion, they'll still have hundreds of billions+ in assets.
I also wonder just how much REITs own of the typical office space in cities compared to religious entities (any search that includes "REIT" plasters the first few pages with how to invest in an REIT so I couldn't find anything on it). The Catholic church is said to be one of the largest land owners in NYC. Why, exactly, should I be worried that their balance sheet loses a 0 but still has ten or eleven other zeros behing the first number? The Church of Scientology or its LLCs owns a whole bunch of property in Clearwater and St. Pete. Forgive me if I don't care that they take a hit to their books. The Mormons, LDS, Catholics, Scientoligists, etc own A LOT of land--most of it in prime down towns where the office buildings are. None of these will affect people's retirement portfolios.
With that being said, if a company like Oracle (randomly picked) could make just as much income by allowing WFH for office staff while also lowering their expenses by leasing less office space wouldn't that (in theory) raise their stock value? They'd have a stronger P&L statement with higher profits due to lower costs.
A good financial advisor will also set up the pathways to avoid drawing down your accounts during down years via things like reverse lines of credit.
The difference over a 10-20 year period can be massive.
A lot of cities fund most of their budgets through property taxes on commercial leases. This is going to be a crisis for city governments and municipal bond holders.
Build more housing?
Sorry best we can do is subsidize demand.
Just keep subsidizing demand. Surely it will work this time...
Hence the drive on the articles to say WFH doesn't work and everyone needs to get back to the office!
Don't ever wonder who drives those clickbait articles.
Agreed. I'm UK based and they've tried to do the same thing here. Half the government probably own property in the city. They just want their excessive rent back.
You and I both. I'm south east England and commute in to London. My days used to consist of a coach, a tube and a walk to get to the office amounting to anything from 1h45m to 2h45m on a bad day. That's each way. Plus an 8 hour day. I did that 4 days a week for years.
Now I have it flipped. I work 8 hour days, more productive, save a bomb on travel and have work life balance. The days I go to the office I now travel in work time, fuck 'em. They owe me just over a decade in blood, sweat, tears, and time I could have spent with my kids growing up.
They get the best of me when I can WFH at my own pace and weedle my work and life together. I understand face to face meetings and work presence but at the same time, too much is hindering. Not enough then it let's people who need to be managed fall through the cracks.
Our company recently stated all employees within 50 miles of certain office hubs have to return in September. Even if you were originally hired as a remote employee. Even if no one on your team even reports to the same office as you. They keep trying to say it’s to “encourage chance encounters”.
Wish they’d stop lying to us and just say they care more about their real estate portfolio than employees.
WFH has been working for the company I work for, for 3 years and 4 months so far... Still in business, still productive!
We went fully remote early in the pandemic and haven't looked back. It expanded our applicant pool (when we were hiring... sigh), enabled presence in more time zones, and allowed sales to be reasonably local with prospects. It's been a huge win for the company, in terms of rent savings, and for the employees.
I understand the desire to bash on corporations (I personally hate working in office and would rather WFH), but we should be reasonably concerned about what happens if $800 billion in investments goes belly up.
In the US, many cities and towns use business property taxes as their primary revenue source. If activists are in favor of cities losing a significant amount of tax revenue, there has to be a replacement model put forward. Otherwise public services and employment will suffer.
I don't think this is the right conclusion. Corporations aren't saying "work hybrid/in person while we phase out needless office assets", they're saying "come back to the office".
Articles like this are, in my opinion, thinly veiled propaganda. It's supposed to invoke the sense that offices are just a necessity of work, when the reality is that we can save time commuting, free up high quality real estate, and generally treat workers more humanely if we phase out a lot of these buildings. This cannot happen overnight, but so far I've seen little to nothing from the big-name corporations about this kind of approach.
I think my comment is being misunderstood. Corporations can get bent for all I care; WFH is the future.
My concern is about local governments dependent on taxing commercial real estate. Someone else responded that a land value tax would solve this problem, and I agree with that.
The other problem is many cities have downtowns stuffed to the gills with offices and coffee shops and nothing else. If those offices aren't there anymore, we should absolutely be encouraging more housing and office conversions.
I resonate with converting them to housing. Currently many cities have zoning restrictions that prevent development of new housing and this has created a scarcity. Not sure if the revenue would be equivalent but this is a win for the people too.
I think the problem is that converting an office building to an apartment building isn't as simple as it seems. The way the buildings are laid out are different, the way the infrastructure in the building is vastly different and has different requirements, and there are tons of codes and regulations that residential builds must meet that commercial buildings don't. And vice versa.
I agree that the space should be repurposed and housing is a great thing to move them to. But I wonder if it might not be cheaper in some circumstances to just knock the building down and build a new one, rather than try to retrofit an existing one that was build entirely differently. I really have no idea.
Unfortunately a lot of commercial and office real estate isn’t really set up to be converted easily to apartments/condos. Big issue is plumbing layouts. In an office setting they are centralized to a few spots on each floor. The entire building would need to have plumbing retrofitted. Doable but not a simple task and is quite costly.
The same owners who own the companies also own the real estate. Forcing the workplaces to keep renting ensures high utilization and thus high rents for everybody.
Easy. Tax the land, not the occupiers of the building. Then the landowners (who may or may not own the building too) have a very strong incentive to sort out whatever building is on it so it's covering the cost of that tax. An office standing empty is going to cost the landowners money. If making it valuable again means tearing down the existing building and putting up housing/shopping/community stuff/vertical farm/power generation then cool. Personally I'd rather the state just took ownership of the land and did that but whatever works for the actual people in the city, works.
Georgism wins again. I agree that a land value tax is a great way to encourage efficient use of downtown cores. I hope this crash in valuation encourages more dense, mixed-use development.
The state owning all land is a really interesting approach too. I think some regions in Asia just do extremely long-term leases to building owners?
In Singapore almost all land is leasehold. Mostly 99 years (all public housing and a significant chunk of private housing) with some 999 year leaseholds. Only 10% of the land is freehold. We have very robust eminent domain laws.
I think its fucked up to just accept that capital holders get to gold our economy hostage.
Why is it that individuals are supposed to be paragons of personal responsibility and perfectly manage their lives, but we can't allow business to suffer from the consequences of their inability to adapt to changing demands in the work marker?
I reject this.
Also, reminder, a lot of these companies used the availability of cheap financing and federal loans to renegotiate their leases or mortgages. Some of them correctly decided to decrease their spend and office space size, and some of them stuck their head in the sand and decided the old wisdom was always good and ignored all the signs that there wasn't going to be a return to the office.
Change isn't overnight but the writing was on the wall even early in the pandemic. So not only is it an inability to adapt, it was a refusal to just open their eyes. I'm of the same opinion, we should let them fail.
See my comment here.
I don't care about big business. I care about the practical realities for local governments that get all their funding from taxing offices that won't exist anymore.
That's fair, and I do sympathize with those concerns. It's just a frustrating reality I see play over again and again. Big business isn't allowed to fail, but people are.
They could convert office space into apartments. There's never a lack of demand for housing in big cities, and plenty of these offices are owned by the exact same entities that have been driving housing prices through the roof.
I’ve heard that the practical (splitting plumbing, electrical, hvac, etc) and safety/residential-code regulatory hurdles for converting an office building into apartments can be enormous, to the point where it’s easier to tear a building down and rebuild from scratch.
Engineer here, it depends on many variables, to include when the commercial facility was made, its last renovation, and the current codes/requirements of the local.
Most commercial facilities have higher requirements than residential, just different configurations. The HVAC would likely be the biggest hurdle, not electrical.
However, given the cost an access concerns around steel and concrete, it is still likely that gutting a commercial facility to the studs and revamping it into living spaces is still economical; more so the local governments could subsidize the action, as well.
Better, I've seen malls repurposed into indoor parks, with municipal functions, non-profits, and other public-type works get moved into them so that people can get all of their governmental business done in an indoor cooled area that has access to lots of amenities. I still hate malls, but learning to repurpose old buildings is likely the best way forward instead of letting them go to blight or trashing them.
For context, I sit on the board of an affordable housing non-profit in my city, and interface with residential builders. We primarily build residential
Converting a mall to public sector usage is way easier than converting a commercial building to residential. They often both fall into commercial code. For converting commercial to residential, it's not just the trades that you have to deal with (although all of them are also heavy considerations, including the requirement for per-unit metering for electric and water, electrical code requirements where every unit needs its own sub-panel and circuits configured to meet local code, plumbing needs that exceed an office building that typically only has a couple bathrooms and a breakroom per floor).
Partitioning a floor of an office is the easy part. But meeting fire code, where every bedroom needs a secondary method of egress (eg a window of sufficient size and opening), might even make so that the floor plate of the building just can't be used for residential if it's either too large or too small. Square high rise office buildings that you commonly find in cities tend to have much larger floor plates (in the 25k+ sqft range) than what you could find in a residential building. This would be about 160ft deep assuming a square footprint. Apartments can really only be so deep (about 40ft) into the building before you're forced to have rooms with no natural light (which again, can't be bedrooms). Making units wider directly decreases the number of units you have on each floor, which increases the cost per unit and per sqft. This is why most apartment buildings are built in a "cereal box" shape, to account for the depth of a living unit without wasting space on a useless core. Purpose-built apartment building architecture will deal with this by having a courtyard or wings. But you typically don't find this in commercial buildings, which don't have this need.
So yeah, it's possible. But in most cities (including ours), it's cost-prohibitive. It's cheaper to tear down and rebuild in order to maximize floor usage and unit density. And even if you had a developer who would be willing to take on that cost and risk, the rent of units in such a building would be sky high because of the high development cost.
This is coming from corps and real estate owners... it's not hard to do. They don't want to do it because they don't want to become landlords to people. It's way easier to rent to a Corp and get a solid check each month.
It’s definitely hard to do with current housing regulations in most markets. Personally, I’m of the kind that we should just relax those. Yeah, maybe there’ll be a units in converted building that has no windows. Sucks, but it probably beats homelessness for the tenant, or otherwise they wouldn’t rent it to begin with.
...while inexpensive perfunctory conversions are seductive, building codes are written in blood...
...residential requirements for fire protection, egress, ventilation, and more can be very different from commercial uses, generally with very good reason, just one example of which is a window in every sleeping unit...
While I largely agree, there's a whole lot of zoning that mandates single-family homes, and it isn't written in the same sort of blood you're talking about. The lines are definitely red though.
...oh absolutely; building codes and zoning ordinances are two very different things...
If you want to keep it, then office buildings can at most be readily expensive penthouses, more likely just continuing as offices as you’d have to demolish them and rebuild to convert into residential housing.
There’s always trade offs.
Regulations can be changed to help with the housing issue we have. Hell even gov. Can step in a give incentives to convert these buildings.
It is hard, though. Or at least it's expensive. My first year as an apprentice, I worked on a full gut renovation of a skyscraper being converted from offices to a hotel. Sure, they saved themselves building a structure, but in return the internal demolition process was slower, they had to cut a second staircase through the entire building, etc. These things can be prefabbed or streamlined on new construction. Weird things constantly come up in old buildings that need to be resolved.
It's very possible, and it's a little less wasteful, it's just that someone has to want to pay for it.
O I'm not saying it's not a walk in the park, but it's not like they've gotta start from ground zero, and I'm not really talking about the buildings that are offices but a fresh coat of paint is the only thing holding them together, I'm more talking about the newer sky scrapers that costed millions to build.
Even newer skyscrapers come with challenges. It's still going to be a full gut renovation, because none of the walls will be in the right place or up to residential standards (sound and fireproofing). This means workers going in and demolishing everything, then removing debris one elevator load at a time. Lots of new buildings rely on post-tensioned cables for structure, so you can't go drilling holes willy-nilly through the floor; every single spot you want to put a hole in that floor, for new plumbing or electrical or HVAC, has to be checked first. Maybe you could have technicians go in and map the exact locations of the cables in every floor before you try and design the layout, but they'd have to be incredibly accurate, and again - it's labor. And if you do it that way, it means that the architects and mechanical designers have to spend more time doing their jobs, because a cable in the wrong place means a toilet has to move means a whole bathroom is off. Etc.
I'm not arguing against it, just trying to explain that it IS a big deal and there's a reason it isn't done more often.
Fair enough, it's a good amount of work, but in the grand scheme of things... companies paying for an empty place vs just converting it to apartments or condos seems like a no brainier.
It could be a worthwhile venture if demand for office space continues to decline and they never rent out the building. If demand remains the same, or rebounds, or they are still able to rent out those offices (even if demand overall declines, there will still be demand for some offices) then the conversion will have been a very costly conversion for nothing.
The NYTimes had a good article about what the conversion from office to residential actually entails, and all the problems with doing it -- but also some successful examples of the conversion:
https://www.nytimes.com/interactive/2023/03/11/upshot/office-conversions.html
or non-paywalled: https://archive.is/g2WL7
Or just include it in the rent.
Isn't WFH causing decreased demand because people no longer need to live in cities?
Believe it or not, some people WANT to live in cities!
I'm in NYC. I don't choose to live here because it's near work; I choose to live here because it's where the culture is. Spent half my life in the suburbs and I'm not eager to go back.
I love the options of things to do in a city, but don't actually like people enough to want to continue to live in one again. I've spent about half my life in the city and half split between suburbs and "the countryside"; while I'm not a country-boy by any measure, small town life in an exburb has it's appeal. More space for my hobbies, less hustle and bustle of a city, still close enough to have all the city options with a little bit of planning to account for getting to them.
Small towns have a lot of appeal to them, spent this past weekend in one visiting friends, went to a bat sanctuary and a peach festival, was a lot of fun, didn't get stuck in traffic once.
That said, having spent time in NYC, it's a bit of an outlier. There's no city like it and 99.9% of large cities don't even compare to the amount of things to do/culture of NYC.
Why would I not believe it? I don't understand the relevance of your response. Obviously some people want to live in cities and some people don't. But WFH has been widely reported to have brought about urban flight. The people who want to live in cities most likely already do, whereas a large portion of people who want to live in rural areas were living in urban areas exclusively due to jobs. Obviously there are exceptions on both sides, but it's much rarer to have to live in a rural area.
Why capslock though? Obsiously, there are people that want and don't want to.
Me, on the other hand, I moved out of the city, finally not bound to it by workplace. But mine and your example are irrelevant to the question that op asked. Honeslty, I wonder too, if WFH caused decreased demand or not, but for that we need some data, not anecdotal examples.
It depends. SF, for example, has seen a decline in demand and rental prices. New York has only increased precipitously in price.
No, because plenty of people who already live in cities now want a home office to WFH from - which means a larger home.
Wouldn't that mean decreased demand in big cities as people move to suburban or rural areas?
Do you have any data to back your answer? I'm curious too, has it decreased demand or not?
There were a bunch of articles I read that claimed that was why Sydney's housing prices didn't drop during the COVID lockdowns, despite WFH substantially increasing demand out in e.g. Katoomba. I didn't bookmark the articles since it wasn't anything anyone seemed to disagree with and there's a bunch of evidence supporting the idea - like, Sydney's housing prices were still going up (I checked like realestate.com.au here and there at the time and that seemed to support it, I suppose you could check that on archive.org), and demand for PCs has grown during the pandemic due to (among other reasons) people wanting to buy both a home PC and a home-work PC (I'm pretty sure Linus Tech Tips said that?). Plus, most people I knew who were working from home had some awkward work setups, so the whole idea was 110% plausible and very truthy.
The counterfactual would be that Sydney prices went up because Sydney prices are fucked for political reasons, not because of any particular reason, per se. Or perhaps that this trend was specific to Sydney and other cities/countries don't like home-offices as much and just work in their bedroom or whatever.
My ire is not directed at anyone reading this, but why should we be concerned? I mean, seriously, why is it an issue if a huge REIT implodes? Or, in the case of New York CIty, the catholic church, which doesn't pay taxes and is the largest land owner in Manhattan, takes a hit on their balance sheet? They've privatized the gains for so long they can keep the losses privatized too. This is a known potential so any retirement fund heavily invested in REITs can only blame themselves. Besides, they'll only "lose" $800 billion if everything they have suddenly loses 100% value. It's a little harder to be concerned if, in reality, they "lose" $500 billion out of $800 billion which means they still have $300 billion in assets. Pity the poor $300,000,000,000 balance sheet.
Cities might be "destroyed" by loss of income. Countless small and medium towns I've travelled through have faced this issue for decades now. Maybe the interstate bypassed them, maybe their manufacturing plants shutdown or moved--you can pick 10 different reasons for 10 different towns. Some adapt, some don't.
Owners/landlords can chose to repurpose the buildings or sell them to someone else who will. They could always gasp lower rent to keep people/businesses around. The fact that most plazas would rather remain empty or half capacity instead of adjust rent is personally disgusting to me. They can adapt or go the way of the dodo. The potential $800 billion "loss" is completely on the owners/landlords and not the workers.
Even Detroit still isn't dead. Some parts have reverted to farmland, some are revitalized and some are still broken down. The population is no longer declining and has seen fractionally small increases in 2021 and 2022.
But here's the thing: The US population is pretty much going to decline unless we accept more immigrants--something anathema to one party. The Boomers will be dying off and the younger generations aren't having kids. The cities can start to try to adapt now or be forced to adapt in a decade or two.
I'm just so tired of anything that helps the working person gets labeled "socialism bad" (COVID relief, extra SNAP, student loan forgiveness, etc) but heaven forbid a big business has any kind of loss we better socialise their temporary dip in earnings while letting them keep their bonuses and never fix the tax loopholes they use (Automotive bailout, Wall Street Bailout, PPP loans with incredibly easy forgiveness qualifications, Airline bailout, bank bailout, etc).
If it was up to me, if the government needed to bailout a company, then they own that company forever and any profits go to pay down the national debt. I think companies would be more careful with themselves if that was the policy.
Absolutely. If a company is "too big to fail" than that sounds like a matter of national security, correct? If they, indeed, do fail and need a bail out then the government should get a percentage of ownership (and a seat(s) on the board) based on how big the bail out is vs assets that the company owns. They can set terms on gaining ownership back after paying back the bailout at the going interest rates with oversight for 5-10 years after completion of buy back to ensure it doesn't happen again.
Exactly. Putting a company into receivership is something we very much know how to do. If government bails a company out, government should take temporary or permanent ownership and leadership should be replaced.
I was just thinking this as well. I'm glad that many organisations are opting for a hybrid approach to working, and that I and most of my friends are able to work from home at least a few days a week. However, it's not lost on me that there is an awful lot of money wrapped up in the business landlord economy, to say nothing of the pilot fish businesses. That lovely little independent coffee shop just around the corner from your office? It's probably really struggling with lack of customers now. I'm quite nervous to see what is going to happen to the economy in the rest of the decade, thanks to this shift towards WFH.
Since the pandemic started, small businesses have increased in my neighborhood- the coffee shop that once was around the office corner is now a couple of blocks from my home. These mom and pop businesses are thriving since things opened up. If those office high rises were turned into residences they would have booming restaurants near them, too, and not just during the week.
It is not like the people going to the office are not going to spend that money elsewhere. Specially many who don’t live in the city centers.
You know where those $800 Billion go if people are not in the office, to the local businesses in the suburbs and to online retailers.
Plus, these type of analysis fail to consider the wellbeing of the workers and the health of our societies and the environment. How much is worth an extra hour of free time, a happier workforce and neighborhoods, and a cleaner environment? Are we willing to pay a fraction of $800 Billion for people (all of us really) to have healthier lives? I'm not saying going to the office is bad - I'm saying going because it is a requirement is.
When homeowners took loans they couldn't afford in 2008 and prior, we let them suffer the consequences of their bad investments. We could have bailed out homeowners and prevented a massive economic crash, but the idea of helping the "little guy" was completely unacceptable. Instead, we helped the banks and let people go into foreclosure.
Now, when faced with a similar economic choice, with the same general scenario but with different groups of people at risk of harm, I don't see why the priorities should suddenly change. Let the investors see the outcome of their risks, bail out the banks if needed.
See my comments here and here.
I'm on the same page, companies should fail when they make bad investments. Market economies break down when anyone is "too big to fail".
That doesn't mean we should ignore impacts to the broader economy and city tax revenue when corporate property taxes massively shrink. I'm in favor of progressive tax replacements like a land value tax.
That's basically how citizen-based governments are supposed to work, yes.
The issue isn't shortsightedness about what corporations losing on these investments means for city government funding, the issue is that city governments are so reliant on corporations that it's better to be more pro-corporation than pro-citizen.
I am very much in favor of cities losing tax revenue. Governments in my area need to feel the squeeze on their budgets, they waste a tremendous amount on dumb events nobody goes to.
Sadly, given past outcomes, it just means the critical services will be slashed and the boondoggles never even examined.
Most likely social services and quality of life items are first to go and not the essentials.
I could not give less of a shit and I'm heavily invested in commercial real estate too. The corporations should not own all the real estate, it should be owned by people.
Serious question: are you planning on selling off the commerical portions of your investments or do you see it bouncing back?
I lucked out (for a millennial anyways) and managed to invest during the last real estate downturn around 2012/13. I have no intention of selling and just want the passive income. I still pay the mortgages but my rent would cover it for a long while, even with rent stabilizing. Just trying to build long term roots for my immigrant family (I'm first generation born here and trying to break our cycle of living foot to mouth).
I hear you on being first gen immigrant and trying to figure out longer term stability in general: there's not a lot of people I can ask and all I'm looking for is breaking even most of the time. Thanks for your insight :)
No worries! Yeah I have the same mindset. I'm not looking for short term high gains, just solid investments for my heirs. If they decide to sell later that's their decision.
The money companies pay for rent doesn’t disappear, it’ll either go to someone’s new Mercedes or to some other payment.
Exactly. A postive headline based on the same facts could be "Remote work to free $800 bln. in office space costs for more productive uses".
Most real estate is anyway owned by large funds and entities that’d just sit on the rent gathered.
Like hiring new employees.
This, 1000 times. I really don't care if a bunch of real estate developers lose money. That money was all ill-gotten gains from paving paradise, anyway.
https://archive.is/QmvwU
Related: The delinquency rate of Commercial Mortgage-Backed Securities (CMBS) backed by office properties jumped to 4.5% by loan balance in June
Not sure if this news was mentioned (link courtesyof HackerNews):
https://www.bostonplans.org/news-calendar/news-updates/2023/07/10/mayor-wu-announces-residential-conversion-program
Here's the HN discussion:
https://news.ycombinator.com/item?id=36715504
Ok... i suppose we can then calculate how much we saved working from home from car gas, lunches, car crashes, transport ticket, etc.
As a society. My guess this second amount is higher than 800 milions.
The money is not lost... just redistributed from corporations and landlord to working people. As it should be.
The city is pressuring the company I work for very hard to make us all come back. They own three buildings downtown. Right now two of them are pretty much sitting empty in the third is maybe 10% full couple days a week. I wouldn't be surprised if the city threatened their tax credits and stuff like that. There have been small business owners blaming the company I work by name for for them going under or struggling.
They have tried to entice us to come in. That didn't work. Some departments are starting to require two days a week. For the most part though no one is budging. I was on one of the teams that required hybrid and I would just spend the day on video calls because I work with a lot of remote workers all over the country and people on teams that were not required to come in.
I feel the tide turning though and I think the pressure to come in is going to increase as the pressure from the city increases.