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The world’s empty office buildings have become a debt time bomb

126 points by the-mitr 3y ago

23B1 3y ago
"If you don't return to work/vote for me/support this policy, the economy will tank" Very tired of the slippery slope fallacy being employed by the commentariat (like Bloomberg) in support of their masters.
jmclnx 3y ago
I could not get into the article. But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own. As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?
- latchkey 3y ago
  Bailout by whom? Banks? They are already struggling, you even mention SVB. The government? Sure... print more money.
  - lumost 3y ago
    economically, printing more money isn't inherently wrong. Money was destroyed by default. Printing money to counterbalance this ... works. In principle, this is why communist regimes can get away with ordering organizations to do X, for Y. The problem is that if you do this every time, you are effectively entrenching the current power structures of society. This isn't a bad thing if those power structures are good - or necessary. But ... it's obvious that repeatedly doing this benefits a specific class of individuals (capital holders) by capping their downside. Capping the downside of existing capital holders also caps the upside of non-capital holders by creating an uneven playing field and eliminating opportunities available to those with "clean" balance sheets.
    - kristov 3y ago
      A chunk of the money created was by lenders, to charge borrowers for the risk of default. If you print more money then you remove the incentive to assess risk. I don't know if this is good or bad, but economics says risk assessment is how capital gets allocated to "good things". Here "good things" I guess means less wasted space in a city center.
- mcs5280 3y ago
  They will be bailed out guaranteed. Can kicking is the only solution.
  - AmpsterMan 3y ago
    I don't think they will be salvaged actually. I think we'll have a combination of less city friendly states not assisting at all leading to companies wanting to force office work in some "spilled milk" style fallacy. There's less than zero chance any of these downtowns will be covered to residential. Offices and homes have very different needs, you basically can't convert.
  - SV_BubbleTime 3y ago
    > Can kicking is the only solution. Oh come on, we can do far more than can kicking. There is always war, revolution, and decades of economic hardship!
    - marcosdumay 3y ago
      > decades of economic hardship That one is can kicking.
- yeetcode 3y ago
  But SVB didn't get bailed out though? At least not the investors. Only the depositors were given their money back.
  - lacksconfidence 3y ago
    It's indirect. Softbank gave money to startups. Startups put the money in SVB. If the startups hadn't been made whole then softbank would have seen many of it's investments fold.
    - refulgentis 3y ago
      That doesn't really hold water. Its an argument that creates a bailout of whoever we want, as long as they're within 6 degrees of SVB. [^1] A huge rhetoric win, a loss for understanding. [^1]: https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon
      - candiddevmike 3y ago
        If startups couldn't make payroll, what do you think would happen here?
        refulgentis 3y ago
        Does asking this advance the discussion, or is it a passive-aggressive way to continue signalling you believe “seized the bank and sold it, keeping deposits whole” means “SoftBank bailout”?
        renewiltord 3y ago
        If you really think about it, it was a bailout of the American people. And that's why it was good and an example of socialist praxis. After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour. Marx would be proud of the FDIC for their work.
- triceratops 3y ago
  I don't understand this "SVB bailout" meme. If a company manufacturing lifesaving medication goes under and the government takes over its factories to keep manufacturing the medicine and prevent shortages, did all the patients get "bailed out"? Should they have known better than to buy their medication from only one manufacturer? Comments like this distract from real bailouts and moral hazards.
  - mlyle 3y ago
    We had a longstanding regime and precedent for how bank defaults would be handled. Anyone with treasury experience knows about insurance limits and accordant risks. Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank. Then they were made whole at 100 cents on the dollar, when it probably would have ended up at 85 cents on the dollar on the amount over $250k the other way. This is pretty much the definition of moral hazard: why diversify banking now? (Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty). My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.
    - mywittyname 3y ago
      Counter-point: SVB's funds were in treasury bonds. Their losses were entirely paper losses caused by the Fed's decision to aggressively raise interest rates. The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds. T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.
      - bugglebeetle 3y ago
        That’s entirely absurd. This is essentially saying there should be a special, perpetual class of government-backed securities with a guaranteed return in excess of all other market performance or conditions. If this was true, everyone would just invest in the special government stocks where you get 10% ROI forever and almost nothing in anything else. At that point, you’d have insane inflation or be better off with a state-run command economy.
pcurve 3y ago
https://archive.is/nKC11 https://archive.is/nKC11
- mm007emko 3y ago
  Thanks!
AntiRemote 3y ago
[dead]
soared 3y ago
What ever happened to that SF office lease time bomb last (or this) year?
- readthenotes1 3y ago
  Read about the Hilton . There was another hotel that closed, and a recently an office building sold for something like 1/3 of what it was bought for before pandemic ($75m vs 240m or something like that). The question is whether those were unusually that's or the start, and I do not have the data to know...
- badcppdev 3y ago
  To stretch the analogy there are large bombs going off and damaging the profits of the lenders who financed various loans. These will continue. US banks weight in at $2T. The Commercial Real Estate market weighs in at 20T although only a portion of that is office buildings in cities.
  - bobthepanda 3y ago
    To put this in perspective, retail has been in free-fall for decades in the United States, yet as of 2018 the US had something like 23 sq ft of retail per capita when countries like Japan, UK, Germany, France etc. average around 4. It takes eons to clear out nonperforming real estate inventory. Just ask the Rust Belt.
    - fragmede 3y ago
      But what is the retail sq ft per capita in urban cores? In the vast endless car-required suburbia that is American, that big box stores dominate, and pull up the average isn't surprising. The easiest way to visualize an acre is a Best Buy, after all. But how about if you only look at stores in Manhattan? What's the per capita SQ ft there?
      - bobthepanda 3y ago
        According to what I can find on the Internet, there is 55M retail square feet in Manhattan for its 1.6M residents, so about 34 square feet per person. Keep in mind that this figure doesn’t account for tourists, commuters, etc; but also keep in mind that over the last decade several large million+ square foot malls have opened in Manhattan itself (Hudson Yards, the Moniyhan station hall, the future Penn Station renovations, the Fulton transit center, the World Trade Center Oculus, etc.) The Hudson Yards one just lost its anchor tenant.
orange_joe 3y ago
In my opinion this isn’t a consequence of the pandemic, but rather an inevitable outcome from the uneven pattern of building that vastly favored commercial real estate and prevented new housing. Even without teleworking, it was likely that jobs shifted toward suburban office parks as they had in the 80s to 2000s. People want to live close to work, and without sufficient housing in cities, commercial real estate in big cities was very likely to suffer in the long term. These foreclosures are actually a good thing as they will allow big cities to rebalance the allocation of their scarcest resource — land.
- chx 3y ago
  Do you see any indicators these bankrupt office towers are being converted to living spaces?
- rcpt 3y ago
  The cities have always been allowed to rebalance land allocation. This might provide a bit more push but I'm skeptical.
- seltzered_ 3y ago
  Worth noting that in the mid 2000s we had urbanist evangelism via works such as 'flight of the creative class' ( https://creativeclass.com/richard_florida/books/the-flight-of-the-creative-class/ https://creativeclass.com/richard_florida/books/the-flight-o... ) which was later put into question by the same author ( https://jacobin.com/2017/08/new-urban-crisis-review-richard-florida https://jacobin.com/2017/08/new-urban-crisis-review-richard-... )
- SV_BubbleTime 3y ago
  > actually a good thing Those words in that word rarely give me confidence in an idea.
  - skizm 3y ago
    Same vibes as when someone describes anything as "perfectly good". It always sets off alarm bells.
hn_throwaway_99 3y ago
I remember an article not to long ago (like past 2 years or so) talking about how all these retail storefronts in Greenwich Village and SoHo in NY were closing because the rents became insane, and apparently (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents. I know redeveloping commercial buildings into residential is very expensive and difficult, but if/when these large commercial landlords do eventually get bailed out, I hope any assistance is conditional on converting buildings to productive uses like residential.
- rcme 3y ago
  I think the reason they preferred the vacancies is that the value of the property is related to the rent price, so if they lowered the rent they’d have to lower the book value of the asset as well.
  - metajon 3y ago
    And compensate creditors.
  - bashinator 3y ago
    Sounds like a regulatory failure; an unoccupied building shouldn't be able to retain book value.
    - bobthepanda 3y ago
      At one point there were suddenly dozens of new bank branches a year because that was the only kind of business that could afford the rent. So the banks ended up propping up the values of their loans. There were subway ads touting how convenient Chase was with 3k locations in Manhattan alone.
    - nradov 3y ago
      It's not a regulatory issue. The issue is loan covenants negotiated between private lenders and borrowers. No one forced them to agree to those terms, and they are free to renegotiate at any time. But cities that want to retain vibrant downtowns should consider imposing some sort of vacancy tax on commercial real estate. That would give landlords an incentive to lease their space out at a lower rate rather than waiting for a more lucrative tenant to come along.
rmbyrro 3y ago
Unpaywalled: http://web.archive.org/web/20230626161433/https://www.bloomberg.com/news/articles/2023-06-23/commercial-real-estate-reset-is-causing-distress-from-san-francisco-to-hong-kong http://web.archive.org/web/20230626161433/https://www.bloomb...
voisin 3y ago
For those cheering on the demise of office landlords, please keep in mind the astonishing number of public and private pension plans invested in these assets. The impact will not be limited to just the landlords and will be nothing short of catastrophic to downtowns (which we’ve just spent the last 30 years trying to rejuvenate after being hollowed out by white flight to the suburbs), the character of our cities, our municipal budgets, and our economy.
- iancmceachern 3y ago
  I think the solution is for those funds to divest in those investments, not for society to change course in order to keep a certain investment vehicle.
- lproven 3y ago
  It is an excellent idea to step back and look at the bigger picture. I put it to you that while you have taken one step back, you will get a clearer view if you take 10 paces back. We are in the midst of catastrophic accelerating climate change. We are heading for a world that is 3-4º C warmer by the end of the 21st century, when children born today are getting to old age. That means the certain collapse of the West Antarctic Ice Sheet and worldwide sea level rise of 5-6 metres in those kids' lifetimes. Now look at how much of these expensive cities and their expensive offices are build under 5-6m of current high tide level. All those buildings will be lost to the sea before they are paid off. All those investors will lose their money. All cities and city districts wholly located within 5-6m of mean sea level will disappear completely. Just considering sea level rise, whole nation states will disappear. Whole economic sectors will collapse. But it's not just about sea level rise. With 3-4º of warming, much of the tropics becomes uninhabitable. Most glaciers disappear; currently fertile countries lose their year-round water supply. The Himalays are called the world's 3rd pole. 5 or 6 major rivers originating in the glaciers of the Himalayas provide about one third of all humanity with their fresh water. All those countries become desert, even if only seasonal desert. All agriculture fails. If you view the world in terms of money -- not a good strong robust worldview at all, but a common one -- then there are far far bigger financial threats looming than empty offices and bankrupt financial institutions that invested in them.
jiveturkey42 3y ago
It would be more cost effective to retrofit these as datacenters than residential apartments
BirAdam 3y ago
I have felt since I was a teen in the 90s that the world would be better served if offices, schools, and factories didn't exist. I thought that this centralization just increased the costs for everyone. Why not keep things decentralized and utilize the technologies we've built to manage the communications and interactions? If there's a CNC machine with one primary operator, why can he have that and the material gets shipped to him and he then ships the next stage product to someone else? With 3D printers this is even crazier right? For technologists, the only job that I can see requiring physical proximity is hardware repair and other helpdesk style roles. I do acknowledge that humans are social animals and there are benefits to face to face interactions, but these come at enormous costs. These costs aren't merely financial as so many people emphasize, but material. The material cost of cities on our planet is quite high. The amount of concrete, metal, glass, and other materials is quite large. With decentralization we would have an increased use of roads for logistical concerns, and we'd have an increased sprawl issue, but there'd be so much less traffic overall I think we'd have a net win on air quality. The next issue to tackle would be expressly limiting sprawl, and I have no idea how that'd be done. EDIT: Comments have been that this would decrease production. this is entirely accurate. Most items today aren't made to last and we have become accustomed to hyperconsumption of low quality stuff. No doubt. Scale has alternatively raised the standard of living the poorest among us by insane amounts. There is severe good and severe bad that have accompanied this remarkable economic boom of the last 100 years. The thought that I really have regarding this is that Amazon has made it possible to distribute insane amounts of stuff to a distributed buying public and there must be a way to manufacture in the same way. I am not a logistics person, and I could be entirely wrong (I probably am), but it's a dream and not a proposal.
- jiveturkey42 3y ago
  This was called Cottage Industry and it was the norm before the industrial revolution
- bluSCALE4 3y ago
  You lost me at shipping CNC machines. I can't wrap my head around that factory job being remote. Personally, I feel these jobs need to go away. Machines need to take them over and we need a new, subsidized generation to figure out what to do next. Global economies need to be a thing of the past.
dbg31415 3y ago
Simple fix! Build more housing near city centers. Design communities where people can walk to work, walk to the neighborhood grocery store, walk to the park... It's all the driving we hate. I'd gladly work in an office again if I could walk there. I will fight tooth and nail against having to commute ever again.
- mooxie 3y ago
  Pre-pandemic I started commuting by train and even though it was nearly the same time spent, my attitude and outlook was worlds better than when I was driving in heavy traffic every day. There are multiple workable solutions, and unfortunately most US cities aren't heavily invested in any of them. My city has very limited rail lines and it was only happenstance that my work was close enough to a stop for it to be a reasonable way to get to the office. Literal millions of other people in the metro area don't have that option.
adverbly 3y ago
Does anyone have any recommended background reading on how bubbles and "time bombs" work? Why don't these things behave according to normal price supply demand curves where the price would slowly come back down to earth over time. I've seen this repeat time and time again across certain assets, and always being curious about the underlying mechanisms.
- SoftTalker 3y ago
  People who are invested in these things are motivated to prop up the prices for as long as they can, until they can't and the bottom drops out. It's not a normal supply/demand curve because the demand is not just lower, in a lot of cases it's gone and not coming back at any price.
  - freedude 3y ago
    Exactly! In these cases it becomes apparent the market isn't free but manipulated in some way (Socialism, tariffs, tax benefits, regulatory measures).
- freedude 3y ago
  The problem with bubbles is you cannot know there was one until it bursts. Then and only then can you see the effects of it. Until then it is merely conjecture based upon delayed information. Here are some searches I have benefited from reading. https://mises.org/search-mises?search=bubble https://mises.org/search-mises?search=bubble https://brownstone.org/?s=%22financial+bubble%22 https://brownstone.org/?s=%22financial+bubble%22 https://swisscows.com/en/web?query=%22financial+bubble%22+site%3Azerohedge.com https://swisscows.com/en/web?query=%22financial+bubble%22+si...
- voz_ 3y ago
  Because those curves are a psuedo-mythological abstraction - a lot in life does not actually work that way.
ambicapter 3y ago
So when is this time bomb exploding? We've been reading about this since Covid ended.
- solumunus 3y ago
  Commercial real estate leases are very long.
- smileysteve 3y ago
  Since Covid Started. My company had a sublease for 2 years; but Google says the average is 8 years for commercial leases. 2020+8 = 2028; which could align with the ~30% increases in vacancy rates; and climbing in 2023.
hd4 3y ago
The time bomb began ticking around the time people started getting broadband connections and work-from-home/video-calling became viable (so around 2007). The surprising thing is the cultural shift took 15 years to play out, and needed an actual global pandemic to really push it through even then, and even then there is a massive effort to put the genie back in the bottle. Turns out office buildings are just another form of technology that has been superseded by something that just works better, deal with it banks.
theodric 3y ago
Accelerationist view: fine, let it happen. I cry no tears over corporate real estate. Build houses, build apartments, and make them cheap enough for even people who don't browse HN to buy.
Managor 3y ago
Don't worry. They're too big to fail so they'll get bailed out to further the wealth gap.
friend_and_foe 3y ago
https://archive.ph/jCkYC https://archive.ph/jCkYC
lamontcg 3y ago
This is probably the tip of the iceberg of the bad businesses/investments that have been propped up by zero percent interest rates for the past decade. When the tide recedes and all those investments pop, that should cause a major recession in the US and rest of the world. A positive feedback loop will also exist, though, where due to the recession and belt-tightening, companies will defect on RTO plans and seek to get out of leases and office spaces, further intensifying the commercial real estate crash. The Fed has definitely slammed on the brakes and will continue to do so until they create a recession and push unemployment significantly higher. We're still in a situation where nothing fundamental has changed about the US economy and if rates were dropped then inflation would surge again. And the only way that keeping rates higher doesn't break the US economy is if you believe that a decade of ZIRP didn't lead to a lot of bad investments that are funded by kick-the-can-down-the-road cheap money refinancing.
brianjking 3y ago
Let me tell you how little I care about someone's commercial real estate investment. It is rapidly approaching 0.
albertopv 3y ago
A world issue or a US one?

126 points by the-mitr 3y ago

23B1 3y ago

"If you don't return to work/vote for me/support this policy, the economy will tank" Very tired of the slippery slope fallacy being employed by the commentariat (like Bloomberg) in support of their masters.

jmclnx 3y ago

I could not get into the article. But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own. As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?

latchkey 3y ago
Bailout by whom? Banks? They are already struggling, you even mention SVB. The government? Sure... print more money.
- lumost 3y ago
  economically, printing more money isn't inherently wrong. Money was destroyed by default. Printing money to counterbalance this ... works. In principle, this is why communist regimes can get away with ordering organizations to do X, for Y. The problem is that if you do this every time, you are effectively entrenching the current power structures of society. This isn't a bad thing if those power structures are good - or necessary. But ... it's obvious that repeatedly doing this benefits a specific class of individuals (capital holders) by capping their downside. Capping the downside of existing capital holders also caps the upside of non-capital holders by creating an uneven playing field and eliminating opportunities available to those with "clean" balance sheets.
  - kristov 3y ago
    A chunk of the money created was by lenders, to charge borrowers for the risk of default. If you print more money then you remove the incentive to assess risk. I don't know if this is good or bad, but economics says risk assessment is how capital gets allocated to "good things". Here "good things" I guess means less wasted space in a city center.
mcs5280 3y ago
They will be bailed out guaranteed. Can kicking is the only solution.
- AmpsterMan 3y ago
  I don't think they will be salvaged actually. I think we'll have a combination of less city friendly states not assisting at all leading to companies wanting to force office work in some "spilled milk" style fallacy. There's less than zero chance any of these downtowns will be covered to residential. Offices and homes have very different needs, you basically can't convert.
- SV_BubbleTime 3y ago
  > Can kicking is the only solution. Oh come on, we can do far more than can kicking. There is always war, revolution, and decades of economic hardship!
  - marcosdumay 3y ago
    > decades of economic hardship That one is can kicking.
yeetcode 3y ago
But SVB didn't get bailed out though? At least not the investors. Only the depositors were given their money back.
- lacksconfidence 3y ago
  It's indirect. Softbank gave money to startups. Startups put the money in SVB. If the startups hadn't been made whole then softbank would have seen many of it's investments fold.
  - refulgentis 3y ago
    That doesn't really hold water. Its an argument that creates a bailout of whoever we want, as long as they're within 6 degrees of SVB. [^1] A huge rhetoric win, a loss for understanding. [^1]: https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon
    - candiddevmike 3y ago
      If startups couldn't make payroll, what do you think would happen here?
      - refulgentis 3y ago
        Does asking this advance the discussion, or is it a passive-aggressive way to continue signalling you believe “seized the bank and sold it, keeping deposits whole” means “SoftBank bailout”?
        renewiltord 3y ago
        If you really think about it, it was a bailout of the American people. And that's why it was good and an example of socialist praxis. After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour. Marx would be proud of the FDIC for their work.
triceratops 3y ago
I don't understand this "SVB bailout" meme. If a company manufacturing lifesaving medication goes under and the government takes over its factories to keep manufacturing the medicine and prevent shortages, did all the patients get "bailed out"? Should they have known better than to buy their medication from only one manufacturer? Comments like this distract from real bailouts and moral hazards.
- mlyle 3y ago
  We had a longstanding regime and precedent for how bank defaults would be handled. Anyone with treasury experience knows about insurance limits and accordant risks. Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank. Then they were made whole at 100 cents on the dollar, when it probably would have ended up at 85 cents on the dollar on the amount over $250k the other way. This is pretty much the definition of moral hazard: why diversify banking now? (Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty). My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.
  - mywittyname 3y ago
    Counter-point: SVB's funds were in treasury bonds. Their losses were entirely paper losses caused by the Fed's decision to aggressively raise interest rates. The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds. T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.
    - bugglebeetle 3y ago
      That’s entirely absurd. This is essentially saying there should be a special, perpetual class of government-backed securities with a guaranteed return in excess of all other market performance or conditions. If this was true, everyone would just invest in the special government stocks where you get 10% ROI forever and almost nothing in anything else. At that point, you’d have insane inflation or be better off with a state-run command economy.

pcurve 3y ago

https://archive.is/nKC11 https://archive.is/nKC11

mm007emko 3y ago
Thanks!

AntiRemote 3y ago

[dead]

soared 3y ago

What ever happened to that SF office lease time bomb last (or this) year?

readthenotes1 3y ago
Read about the Hilton . There was another hotel that closed, and a recently an office building sold for something like 1/3 of what it was bought for before pandemic ($75m vs 240m or something like that). The question is whether those were unusually that's or the start, and I do not have the data to know...
badcppdev 3y ago
To stretch the analogy there are large bombs going off and damaging the profits of the lenders who financed various loans. These will continue. US banks weight in at $2T. The Commercial Real Estate market weighs in at 20T although only a portion of that is office buildings in cities.
- bobthepanda 3y ago
  To put this in perspective, retail has been in free-fall for decades in the United States, yet as of 2018 the US had something like 23 sq ft of retail per capita when countries like Japan, UK, Germany, France etc. average around 4. It takes eons to clear out nonperforming real estate inventory. Just ask the Rust Belt.
  - fragmede 3y ago
    But what is the retail sq ft per capita in urban cores? In the vast endless car-required suburbia that is American, that big box stores dominate, and pull up the average isn't surprising. The easiest way to visualize an acre is a Best Buy, after all. But how about if you only look at stores in Manhattan? What's the per capita SQ ft there?
    - bobthepanda 3y ago
      According to what I can find on the Internet, there is 55M retail square feet in Manhattan for its 1.6M residents, so about 34 square feet per person. Keep in mind that this figure doesn’t account for tourists, commuters, etc; but also keep in mind that over the last decade several large million+ square foot malls have opened in Manhattan itself (Hudson Yards, the Moniyhan station hall, the future Penn Station renovations, the Fulton transit center, the World Trade Center Oculus, etc.) The Hudson Yards one just lost its anchor tenant.

orange_joe 3y ago

In my opinion this isn’t a consequence of the pandemic, but rather an inevitable outcome from the uneven pattern of building that vastly favored commercial real estate and prevented new housing. Even without teleworking, it was likely that jobs shifted toward suburban office parks as they had in the 80s to 2000s. People want to live close to work, and without sufficient housing in cities, commercial real estate in big cities was very likely to suffer in the long term. These foreclosures are actually a good thing as they will allow big cities to rebalance the allocation of their scarcest resource — land.

chx 3y ago
Do you see any indicators these bankrupt office towers are being converted to living spaces?
rcpt 3y ago
The cities have always been allowed to rebalance land allocation. This might provide a bit more push but I'm skeptical.
seltzered_ 3y ago
Worth noting that in the mid 2000s we had urbanist evangelism via works such as 'flight of the creative class' ( https://creativeclass.com/richard_florida/books/the-flight-of-the-creative-class/ https://creativeclass.com/richard_florida/books/the-flight-o... ) which was later put into question by the same author ( https://jacobin.com/2017/08/new-urban-crisis-review-richard-florida https://jacobin.com/2017/08/new-urban-crisis-review-richard-... )
SV_BubbleTime 3y ago
> actually a good thing Those words in that word rarely give me confidence in an idea.
- skizm 3y ago
  Same vibes as when someone describes anything as "perfectly good". It always sets off alarm bells.

hn_throwaway_99 3y ago

I remember an article not to long ago (like past 2 years or so) talking about how all these retail storefronts in Greenwich Village and SoHo in NY were closing because the rents became insane, and apparently (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents. I know redeveloping commercial buildings into residential is very expensive and difficult, but if/when these large commercial landlords do eventually get bailed out, I hope any assistance is conditional on converting buildings to productive uses like residential.

rcme 3y ago
I think the reason they preferred the vacancies is that the value of the property is related to the rent price, so if they lowered the rent they’d have to lower the book value of the asset as well.
- metajon 3y ago
  And compensate creditors.
- bashinator 3y ago
  Sounds like a regulatory failure; an unoccupied building shouldn't be able to retain book value.
  - bobthepanda 3y ago
    At one point there were suddenly dozens of new bank branches a year because that was the only kind of business that could afford the rent. So the banks ended up propping up the values of their loans. There were subway ads touting how convenient Chase was with 3k locations in Manhattan alone.
  - nradov 3y ago
    It's not a regulatory issue. The issue is loan covenants negotiated between private lenders and borrowers. No one forced them to agree to those terms, and they are free to renegotiate at any time. But cities that want to retain vibrant downtowns should consider imposing some sort of vacancy tax on commercial real estate. That would give landlords an incentive to lease their space out at a lower rate rather than waiting for a more lucrative tenant to come along.

rmbyrro 3y ago

Unpaywalled: http://web.archive.org/web/20230626161433/https://www.bloomberg.com/news/articles/2023-06-23/commercial-real-estate-reset-is-causing-distress-from-san-francisco-to-hong-kong http://web.archive.org/web/20230626161433/https://www.bloomb...

voisin 3y ago

For those cheering on the demise of office landlords, please keep in mind the astonishing number of public and private pension plans invested in these assets. The impact will not be limited to just the landlords and will be nothing short of catastrophic to downtowns (which we’ve just spent the last 30 years trying to rejuvenate after being hollowed out by white flight to the suburbs), the character of our cities, our municipal budgets, and our economy.

iancmceachern 3y ago
I think the solution is for those funds to divest in those investments, not for society to change course in order to keep a certain investment vehicle.
lproven 3y ago
It is an excellent idea to step back and look at the bigger picture. I put it to you that while you have taken one step back, you will get a clearer view if you take 10 paces back. We are in the midst of catastrophic accelerating climate change. We are heading for a world that is 3-4º C warmer by the end of the 21st century, when children born today are getting to old age. That means the certain collapse of the West Antarctic Ice Sheet and worldwide sea level rise of 5-6 metres in those kids' lifetimes. Now look at how much of these expensive cities and their expensive offices are build under 5-6m of current high tide level. All those buildings will be lost to the sea before they are paid off. All those investors will lose their money. All cities and city districts wholly located within 5-6m of mean sea level will disappear completely. Just considering sea level rise, whole nation states will disappear. Whole economic sectors will collapse. But it's not just about sea level rise. With 3-4º of warming, much of the tropics becomes uninhabitable. Most glaciers disappear; currently fertile countries lose their year-round water supply. The Himalays are called the world's 3rd pole. 5 or 6 major rivers originating in the glaciers of the Himalayas provide about one third of all humanity with their fresh water. All those countries become desert, even if only seasonal desert. All agriculture fails. If you view the world in terms of money -- not a good strong robust worldview at all, but a common one -- then there are far far bigger financial threats looming than empty offices and bankrupt financial institutions that invested in them.

jiveturkey42 3y ago

It would be more cost effective to retrofit these as datacenters than residential apartments

BirAdam 3y ago

I have felt since I was a teen in the 90s that the world would be better served if offices, schools, and factories didn't exist. I thought that this centralization just increased the costs for everyone. Why not keep things decentralized and utilize the technologies we've built to manage the communications and interactions? If there's a CNC machine with one primary operator, why can he have that and the material gets shipped to him and he then ships the next stage product to someone else? With 3D printers this is even crazier right? For technologists, the only job that I can see requiring physical proximity is hardware repair and other helpdesk style roles. I do acknowledge that humans are social animals and there are benefits to face to face interactions, but these come at enormous costs. These costs aren't merely financial as so many people emphasize, but material. The material cost of cities on our planet is quite high. The amount of concrete, metal, glass, and other materials is quite large. With decentralization we would have an increased use of roads for logistical concerns, and we'd have an increased sprawl issue, but there'd be so much less traffic overall I think we'd have a net win on air quality. The next issue to tackle would be expressly limiting sprawl, and I have no idea how that'd be done. EDIT: Comments have been that this would decrease production. this is entirely accurate. Most items today aren't made to last and we have become accustomed to hyperconsumption of low quality stuff. No doubt. Scale has alternatively raised the standard of living the poorest among us by insane amounts. There is severe good and severe bad that have accompanied this remarkable economic boom of the last 100 years. The thought that I really have regarding this is that Amazon has made it possible to distribute insane amounts of stuff to a distributed buying public and there must be a way to manufacture in the same way. I am not a logistics person, and I could be entirely wrong (I probably am), but it's a dream and not a proposal.

jiveturkey42 3y ago
This was called Cottage Industry and it was the norm before the industrial revolution
bluSCALE4 3y ago
You lost me at shipping CNC machines. I can't wrap my head around that factory job being remote. Personally, I feel these jobs need to go away. Machines need to take them over and we need a new, subsidized generation to figure out what to do next. Global economies need to be a thing of the past.

dbg31415 3y ago

Simple fix! Build more housing near city centers. Design communities where people can walk to work, walk to the neighborhood grocery store, walk to the park... It's all the driving we hate. I'd gladly work in an office again if I could walk there. I will fight tooth and nail against having to commute ever again.

mooxie 3y ago
Pre-pandemic I started commuting by train and even though it was nearly the same time spent, my attitude and outlook was worlds better than when I was driving in heavy traffic every day. There are multiple workable solutions, and unfortunately most US cities aren't heavily invested in any of them. My city has very limited rail lines and it was only happenstance that my work was close enough to a stop for it to be a reasonable way to get to the office. Literal millions of other people in the metro area don't have that option.

adverbly 3y ago

Does anyone have any recommended background reading on how bubbles and "time bombs" work? Why don't these things behave according to normal price supply demand curves where the price would slowly come back down to earth over time. I've seen this repeat time and time again across certain assets, and always being curious about the underlying mechanisms.

SoftTalker 3y ago
People who are invested in these things are motivated to prop up the prices for as long as they can, until they can't and the bottom drops out. It's not a normal supply/demand curve because the demand is not just lower, in a lot of cases it's gone and not coming back at any price.
- freedude 3y ago
  Exactly! In these cases it becomes apparent the market isn't free but manipulated in some way (Socialism, tariffs, tax benefits, regulatory measures).
freedude 3y ago
The problem with bubbles is you cannot know there was one until it bursts. Then and only then can you see the effects of it. Until then it is merely conjecture based upon delayed information. Here are some searches I have benefited from reading. https://mises.org/search-mises?search=bubble https://mises.org/search-mises?search=bubble https://brownstone.org/?s=%22financial+bubble%22 https://brownstone.org/?s=%22financial+bubble%22 https://swisscows.com/en/web?query=%22financial+bubble%22+site%3Azerohedge.com https://swisscows.com/en/web?query=%22financial+bubble%22+si...
voz_ 3y ago
Because those curves are a psuedo-mythological abstraction - a lot in life does not actually work that way.

ambicapter 3y ago

So when is this time bomb exploding? We've been reading about this since Covid ended.

solumunus 3y ago
Commercial real estate leases are very long.
smileysteve 3y ago
Since Covid Started. My company had a sublease for 2 years; but Google says the average is 8 years for commercial leases. 2020+8 = 2028; which could align with the ~30% increases in vacancy rates; and climbing in 2023.

hd4 3y ago

The time bomb began ticking around the time people started getting broadband connections and work-from-home/video-calling became viable (so around 2007). The surprising thing is the cultural shift took 15 years to play out, and needed an actual global pandemic to really push it through even then, and even then there is a massive effort to put the genie back in the bottle. Turns out office buildings are just another form of technology that has been superseded by something that just works better, deal with it banks.

theodric 3y ago

Accelerationist view: fine, let it happen. I cry no tears over corporate real estate. Build houses, build apartments, and make them cheap enough for even people who don't browse HN to buy.

Managor 3y ago

Don't worry. They're too big to fail so they'll get bailed out to further the wealth gap.

friend_and_foe 3y ago

https://archive.ph/jCkYC https://archive.ph/jCkYC

lamontcg 3y ago

This is probably the tip of the iceberg of the bad businesses/investments that have been propped up by zero percent interest rates for the past decade. When the tide recedes and all those investments pop, that should cause a major recession in the US and rest of the world. A positive feedback loop will also exist, though, where due to the recession and belt-tightening, companies will defect on RTO plans and seek to get out of leases and office spaces, further intensifying the commercial real estate crash. The Fed has definitely slammed on the brakes and will continue to do so until they create a recession and push unemployment significantly higher. We're still in a situation where nothing fundamental has changed about the US economy and if rates were dropped then inflation would surge again. And the only way that keeping rates higher doesn't break the US economy is if you believe that a decade of ZIRP didn't lead to a lot of bad investments that are funded by kick-the-can-down-the-road cheap money refinancing.

brianjking 3y ago

Let me tell you how little I care about someone's commercial real estate investment. It is rapidly approaching 0.

albertopv 3y ago

A world issue or a US one?