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I genuinely don’t understand why this perspective is so compelling. CRE is a big deal, but I don’t think companies are so incentivized to optimize CRE value. Th

I genuinely don’t understand why this perspective is so compelling. CRE is a big deal, but I don’t think companies are so incentivized to optimize CRE value. They’re trying to succeed in their business.

eli_gottlieb 3y ago
Your average productive firm is not incentivized to optimize CRE value. However, they are often renting commercial real-estate on a fixed-term lease and need to get what value from the remainder of their lease that they can.
- jedberg 3y ago
  That's the sunk cost fallacy. They're gonna pay it regardless, it doesn't matter if people show up or not. It's still cheaper to not have folks show up because then you don't have to pay for all the ongoing incidental charges.
  - thrtythreeforty 3y ago
    I've been hearing this a lot, and I actually think you have the company's logic backward. (For what it's worth, I'm pro-WFH, and I think a lot of circles don't square with the rhetoric from my company regarding RTO, but hear me out.) The lease is locked in. From the company's perspective, the building is now free, except for marginal costs per employee that shows up. So the only remaining math for the company to consider is, are the benefits that the company gains from an onsite employee greater than the $2/day it costs to provide coffee and toilet paper? Remember, the company is happy to outsource the cost of commuting to employees, and only cares about the value of the building if they own it. And they have great institutional difficulty in weighing intangible employee satisfaction against other perceived gains for the company. Under this logic, I think it's easy to see why management, acting in the company's best interest, is pushing RTO so hard. If it costs employees $10/day but makes the company $3, that's free money.
    - hn_throwaway_99 3y ago
      So as soon as the lease is up and needs to be renewed, you're proposing exec management is going to be like "Yeah, you know how we had this major brouhaha forcing everyone to RTO that sometimes it felt like the majority of our internal comms were on this topic? We changed our mind, we're all going to WFH from now on." The mental gymnastics folks go through to support one side or the other in this debate is just mind boggling to me, especially since their are much simpler and more likely pros/cons for both WFH and RTO.
  - whateveracct 3y ago
    Nobody said management is inherently rational.
jedberg 3y ago
They don't directly care about CRE. But their wealthy friends (and most likely most F500 CEOs) own or are invested in CRE. By convincing all their CEO friends to force RTO, they can boost the CRE. Also some of biggest companies are effectively invested in CRE because they built huge campuses and while those are technically owned by others, they are in super long term leases which require them to have a certain number of people there every day, as well as local tax breaks that they get for having a certain attendance.
- buffington 3y ago
  Can you link to an example of a lease that requires a certain number of people be there every day? I used to have a business that needed office space, and of the several buildings we used over the course of about 10 years, not a single lease ever cared about how many people would show up every day. The closest thing to that would be related to max occupancy and parking spaces. The leases would always have to specify how many people could be in the building at most for fire code compliance, and that number determined the number of accessible and normal parking spaces. Regarding tax breaks, I never saw any, but that was pre-pandemic. That makes more sense to me, but leases requiring minimum attendance counts seems like it could be an oft-repeated myth.
rickydroll 3y ago
it's not all about the CRE value, it's also about the businesses that would not survive without the daily influx of commuters. Parking garages, lunch shops, drycleaners, etc.

eli_gottlieb 3y ago

Your average productive firm is not incentivized to optimize CRE value. However, they are often renting commercial real-estate on a fixed-term lease and need to get what value from the remainder of their lease that they can.

jedberg 3y ago
That's the sunk cost fallacy. They're gonna pay it regardless, it doesn't matter if people show up or not. It's still cheaper to not have folks show up because then you don't have to pay for all the ongoing incidental charges.
- thrtythreeforty 3y ago
  I've been hearing this a lot, and I actually think you have the company's logic backward. (For what it's worth, I'm pro-WFH, and I think a lot of circles don't square with the rhetoric from my company regarding RTO, but hear me out.) The lease is locked in. From the company's perspective, the building is now free, except for marginal costs per employee that shows up. So the only remaining math for the company to consider is, are the benefits that the company gains from an onsite employee greater than the $2/day it costs to provide coffee and toilet paper? Remember, the company is happy to outsource the cost of commuting to employees, and only cares about the value of the building if they own it. And they have great institutional difficulty in weighing intangible employee satisfaction against other perceived gains for the company. Under this logic, I think it's easy to see why management, acting in the company's best interest, is pushing RTO so hard. If it costs employees $10/day but makes the company $3, that's free money.
  - hn_throwaway_99 3y ago
    So as soon as the lease is up and needs to be renewed, you're proposing exec management is going to be like "Yeah, you know how we had this major brouhaha forcing everyone to RTO that sometimes it felt like the majority of our internal comms were on this topic? We changed our mind, we're all going to WFH from now on." The mental gymnastics folks go through to support one side or the other in this debate is just mind boggling to me, especially since their are much simpler and more likely pros/cons for both WFH and RTO.
- whateveracct 3y ago
  Nobody said management is inherently rational.

jedberg 3y ago

They don't directly care about CRE. But their wealthy friends (and most likely most F500 CEOs) own or are invested in CRE. By convincing all their CEO friends to force RTO, they can boost the CRE. Also some of biggest companies are effectively invested in CRE because they built huge campuses and while those are technically owned by others, they are in super long term leases which require them to have a certain number of people there every day, as well as local tax breaks that they get for having a certain attendance.

buffington 3y ago
Can you link to an example of a lease that requires a certain number of people be there every day? I used to have a business that needed office space, and of the several buildings we used over the course of about 10 years, not a single lease ever cared about how many people would show up every day. The closest thing to that would be related to max occupancy and parking spaces. The leases would always have to specify how many people could be in the building at most for fire code compliance, and that number determined the number of accessible and normal parking spaces. Regarding tax breaks, I never saw any, but that was pre-pandemic. That makes more sense to me, but leases requiring minimum attendance counts seems like it could be an oft-repeated myth.

rickydroll 3y ago

it's not all about the CRE value, it's also about the businesses that would not survive without the daily influx of commuters. Parking garages, lunch shops, drycleaners, etc.