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This could spiral as a corporate landlord will need to raise lease charges to compensate which might cause more tenants to leave. I've seen this tactic used wh

This could spiral as a corporate landlord will need to raise lease charges to compensate which might cause more tenants to leave. I've seen this tactic used when they want turnover on tenants.

toomuchtodo 4y ago
Good! Those who must have office space will grit their teeth and eat the cost, those who want it for non essential reasons will be forced to divest as the death spiral picks up speed.
coldtea 4y ago
>This could spiral as a corporate landlord will need to raise lease charges to compensate Supply and demand works the opposite way.
- toomuchtodo 4y ago
  As demand dries up, debt must continued to be serviced. If unable to, there will be defaults. Some office space will remain in service after the current debt holders take a haircut. Other office space will be taken out of service for other uses, constraining go forward supply and increasing what landlords can charge for remaining inventory. We haven’t even touched on all the Boomers retiring and zombie companies that’ll be flushed out of the economy by the Fed holding the benchmark rate up.
  - hot_gril 4y ago
    Raising rents above market price won't bring in more rent. The companies that are screwed either way default, and that's it. At the end of the day, there will still be the same amount of land/offices and similar costs but less demand for them.
    - mattbrewsbytes 4y ago
      Yeah I might be off on my comment thinking from the perspective of how sometimes they’ll jack rent up to flip tenants to bigger businesses with bigger wallets. Like if a few tenants don’t renew on a 15 story bldg then jack the rates up to get the rest out and hope for a larger company to lease the full building since they won’t want to build in this economy.
      - hot_gril 4y ago
        Yeah, I can see that.
  - syntheweave 4y ago
    We're in for a period of stranded assets any way you slice it - if it's not the demographics or central bank moves, it's the technology. A lot of atoms in the economy are on their way to finding substitutes, and it's disruptive to our understanding of where economic wealth is - valuation of land, raw materials, intellectual property. Those are things I don't want to hold during a restructuring because I won't have a clear view of where they ultimately land. My portfolio focus has gone towards embracing new/emerging asset classes, as those are proven survivors when the economy undergoes structural change. Just a matter of spreading risk so that the ones that go to zero are cancelled out by the 10x'ers. Crypto is a big one in that portfolio - for as much as I complain about how misguided it can be, there's a there there, and the political tension around it reflects the fact that its adoption would be part of a major structural shift. The current wave of generative AI is also that, and EVs, self-driving, and other disruptive tech. All the stuff that gets people really hot and bothered.
    - cs702 4y ago
      Hmmm... I find your comment thought-provoking. I'm not as confident as you that the restructuring you talk about will occur so quickly, mainly because big things always take a lot longer than we expect in the short to medium term. I mean, it could be a decade or longer before everyday use of self-driving, EVs, generative AI, crypto-assets, etc. reach mass adoption. But long-term, I think you're unto something. You're making me rethink my assumptions :-)
  - FrontierPsych 4y ago
    >Other office space will be taken out of service for other uses What uses would those be?
    - toomuchtodo 4y ago
      Residential units primarily. Chicago has received $1.2B in proposals to convert office space to residential apartments, for example. I imagine you might be able to convert to hotels as well, but admittedly I have not yet done that research.
      - FrontierPsych 4y ago
        Interesting that they received those proposals. I just read an article saying that the costs would be prohibative to upgrade office highrises into apartments. Here is one that I just googled: https://www.bizjournals.com/bizjournals/news/2022/04/13/office-apartment-conversions.html https://www.bizjournals.com/bizjournals/news/2022/04/13/offi... I read another article about it being the same thing in Los Angeles - cost prohibative.
- emodendroket 4y ago
  Yeah man that's why the tenants refuse to renew. Even the crudest model of markets allows for someone to attempt to set prices that the market will not bear.

This could spiral as a corporate landlord will need to raise lease charges to compensate which might cause more tenants to leave. I've seen this tactic used when they want turnover on tenants.

toomuchtodo 4y ago

Good! Those who must have office space will grit their teeth and eat the cost, those who want it for non essential reasons will be forced to divest as the death spiral picks up speed.

coldtea 4y ago

>This could spiral as a corporate landlord will need to raise lease charges to compensate Supply and demand works the opposite way.

toomuchtodo 4y ago
As demand dries up, debt must continued to be serviced. If unable to, there will be defaults. Some office space will remain in service after the current debt holders take a haircut. Other office space will be taken out of service for other uses, constraining go forward supply and increasing what landlords can charge for remaining inventory. We haven’t even touched on all the Boomers retiring and zombie companies that’ll be flushed out of the economy by the Fed holding the benchmark rate up.
- hot_gril 4y ago
  Raising rents above market price won't bring in more rent. The companies that are screwed either way default, and that's it. At the end of the day, there will still be the same amount of land/offices and similar costs but less demand for them.
  - mattbrewsbytes 4y ago
    Yeah I might be off on my comment thinking from the perspective of how sometimes they’ll jack rent up to flip tenants to bigger businesses with bigger wallets. Like if a few tenants don’t renew on a 15 story bldg then jack the rates up to get the rest out and hope for a larger company to lease the full building since they won’t want to build in this economy.
    - hot_gril 4y ago
      Yeah, I can see that.
- syntheweave 4y ago
  We're in for a period of stranded assets any way you slice it - if it's not the demographics or central bank moves, it's the technology. A lot of atoms in the economy are on their way to finding substitutes, and it's disruptive to our understanding of where economic wealth is - valuation of land, raw materials, intellectual property. Those are things I don't want to hold during a restructuring because I won't have a clear view of where they ultimately land. My portfolio focus has gone towards embracing new/emerging asset classes, as those are proven survivors when the economy undergoes structural change. Just a matter of spreading risk so that the ones that go to zero are cancelled out by the 10x'ers. Crypto is a big one in that portfolio - for as much as I complain about how misguided it can be, there's a there there, and the political tension around it reflects the fact that its adoption would be part of a major structural shift. The current wave of generative AI is also that, and EVs, self-driving, and other disruptive tech. All the stuff that gets people really hot and bothered.
  - cs702 4y ago
    Hmmm... I find your comment thought-provoking. I'm not as confident as you that the restructuring you talk about will occur so quickly, mainly because big things always take a lot longer than we expect in the short to medium term. I mean, it could be a decade or longer before everyday use of self-driving, EVs, generative AI, crypto-assets, etc. reach mass adoption. But long-term, I think you're unto something. You're making me rethink my assumptions :-)
- FrontierPsych 4y ago
  >Other office space will be taken out of service for other uses What uses would those be?
  - toomuchtodo 4y ago
    Residential units primarily. Chicago has received $1.2B in proposals to convert office space to residential apartments, for example. I imagine you might be able to convert to hotels as well, but admittedly I have not yet done that research.
    - FrontierPsych 4y ago
      Interesting that they received those proposals. I just read an article saying that the costs would be prohibative to upgrade office highrises into apartments. Here is one that I just googled: https://www.bizjournals.com/bizjournals/news/2022/04/13/office-apartment-conversions.html https://www.bizjournals.com/bizjournals/news/2022/04/13/offi... I read another article about it being the same thing in Los Angeles - cost prohibative.
emodendroket 4y ago
Yeah man that's why the tenants refuse to renew. Even the crudest model of markets allows for someone to attempt to set prices that the market will not bear.