6 ms·

Landlords Are 'Handing Back the Keys' with Offices 23% Empty

61 points by TaurenHunter 3y ago

tsunamifury 3y ago
This feels like the exact situation that aligns with "Things go wrong very slowly, then all at once."
- jeffbee 3y ago
  It's good for basically everyone, except banks, when the lenders ultimately write down these losses. It frees the market from mental hurdles that discourage leasing activity and will lower rents more quickly. Lower commercial rents are a benefit to the other 99.95% of economic activity. The only thing I find really inexplicable is those few submarkets where vacancies are high and rising, net absorption is negative, and they are still expanding the inventory by 2% or more annually. That's truly baffling but maybe those investors have reason for optimism.
  - tsunamifury 3y ago
    Like Austin? I think it’s mostly places where that expansion was planned and financed long ago right?
    - jeffbee 3y ago
      Austin is the really weird one, yes. I think they delivered 2+ million square feet of new space each of the last three years.
iwontberude 3y ago
Perhaps these banks can convince their local governments to rezone the land use to convert them into residential or mixed.
- diogenescynic 3y ago
  Commercial and residential buildings have different building codes. It would take years/decades to get approval and actually retrofit buildings. Cities like San Francisco chose to suppress residential housing and focused on commercial buildings because it was cheaper and required less infrastructure and made the city more money through payroll taxes. I'm glad they are being punished for their poor long term planning. Hopefully other cities learn from their mistakes and start to allow mixed use zoning, etc.
  - malfist 3y ago
    > I'm glad they are being punished for their poor long term planning. This is a cold take. You shouldn't celebrate people getting hurt.
    - diogenescynic 3y ago
      There is a reason your hand hurts with pain after you touch a hot object. This teaches you not to do it again. This is just part of the grand experiment of the US--sometimes cities fail so other cities can learn/avoid the same mistakes.
  - inasio 3y ago
    It may not be as hard as you imagine, see e.g., Manhattan a few weeks ago: https://www.bloomberg.com/news/articles/2023-02-23/nyc-s-biggest-office-to-condo-conversion-opens https://www.bloomberg.com/news/articles/2023-02-23/nyc-s-big...
    - diogenescynic 3y ago
      Manhattan's real estate laws are pretty different from the rest of the country. They already allow more mixed use real estate than anywhere else in the country. I think it's a bigger hurdle for a place like California and especially San Francisco to overcome (even more so quickly).
- bequanna 3y ago
symlinkk 3y ago
> About 23% of office space in the United States was vacant or available for sublet at the end of November, according to Avison Young, a real estate services firm, compared with 16% before the pandemic Wow it’s literally nothing
- diogenescynic 3y ago
  A 50% increase is pretty significant. Especially if you're the landlord with a mortgage.
  - superduperer 3y ago
    [dead]
  - toomuchtodo 3y ago
    Landlord walks away, bank eats the loss, FDIC steps in if the bank mismanaged the risk and fails. Is FDIC going to fail? Obviously not, the government and central bank will not fail.
    - diogenescynic 3y ago
      So you want another round of regional bank failures so more money will move to JP Morgan? Can't see that going wrong.
      - toomuchtodo 3y ago
        If the insolvency already exists, are you advocating to pretend it doesn’t? There are too many banks in the US anyway. If community or regional banks fail, replace them with postal banking or FedAccounts if you’re concerned about lack of deposit account options. https://www.npr.org/2023/05/16/1176513695/does-the-u-s-have-too-many-banks https://www.npr.org/2023/05/16/1176513695/does-the-u-s-have-... https://www.congress.gov/bill/116th-congress/senate-bill/3571/text https://www.congress.gov/bill/116th-congress/senate-bill/357...
Devasta 3y ago
This sounds like its more about interest rates than it is people working from home, not that that'll stop anyone from trying to bring you back into the office anyway.
monero-xmr 3y ago
17% of all homeowners who defaulted in the 2008 mortgage crisis walked away strategically https://www.city-journal.org/article/the-menace-of-strategic-default#:~:text=The%20study%20estimates%20that%20in,to%2040%20percent%20in%20California https://www.city-journal.org/article/the-menace-of-strategic.... I distinctly remember stories on NPR during the crisis that browbeat homeowners who did this or thinking about doing this, claiming it was “unethical”. It’s the same story with companies that ask for loyalty then lay off with pleas towards efficiency. It’s always business, whenever someone plays towards my emotions in financial deals I want to shake them.
- jeffbee 3y ago
  > 17% of all homeowners in the 2008 mortgage crisis walked away strategically That is a quite misleading restatement of the facts. 2 of 144 million homes in the US were foreclosed in 2008, and 17% of those were deemed "strategic". That's 0.2% of homes.
  - monero-xmr 3y ago
    I meant of defaults total of course. I edited the comment
- nerdponx 3y ago
  The article title is pretty funny. The menace of people taking advantage of a system that's been taking advantage of them all along!
- wharvle 3y ago
  > I distinctly remember stories on NPR during the crisis that browbeat homeowners who did this or thinking about doing this, claiming it was “unethical”. Whatever one thinks of the rest of the book, everyone should internalize the part of Graeber’s Debt in which he explains that connecting moral duty to personal debt under impersonal capitalism (if not, perhaps, to debt owed someone you know) is grade-A bullshit. It’s just business. Make the move that is best for you, period. Sometimes that’s default! It’s probably nice for lenders if people believe there’s some moral duty attached, but that moral duty is only ever gonna go one way, so don’t fall for it. They’re not doing you a favor. It’s business. They make profit because there’s risk.
deleted 3y ago
[deleted]
diogenescynic 3y ago
This seems to be proof that return to office is NOT happening despite the scare mongering articles.
- jfghi 3y ago
  Companies are trying. For many, return to office is impossible as it’s prevented by costs of living too high near offices, a spouse whose job requires a certain location, and children enrolled in school in a different location than office.
  - diogenescynic 3y ago
    But why? Companies have never been more profitable and we've been working remotely for 3+ years now. What is the point in return to office if it isn't necessary, means less working hours available for employees (I can't work during my commute), and it costs companies more for real estate? I just don't see the point unless you're someone like Apple, Amazon, Microsoft and you have large real estate holdings you're worried about taking a loss on? But even then that seems small in the grand scheme of things, so I really don't get it.
    - dboreham 3y ago
      Not 100% sure, but we know that the management of companies were never concerned with the efficiency of their workers. If they were we wouldn't have open plan offices for software developers, fluorescent lights, pointless meetings, etc.
    - vidarh 3y ago
      It takes effort to manage a remote team. It's possible to coast by looking for superficial signs your team is busy when everyone is in the office. In fact, that same effect goes all the way up: You'll find higher management sometimes look for idiotic signs in their reports, such as whether they see them walking the floor. So then of course a lot of managers will be walking the floors and using looking for signs people are busy as a management technique. One of the few times I've ever gotten dinged in performance reviews was in one of my early roles managing a team when I was told I wasn't being seen being visible enough. There were no issues with productivity or deliverables, or staff retention or anything else - I wasn't seen engaging in the rituals that were expected. So after that I made an effort to walk around the office now and again, and all was well and nothing gained, except my reviews improved. Once teams of managers who bought into this approach are suddenly remote these people are forced to learn how to actually manage for outcomes, and that is a big step change in difficulty and effort. In other words, expect the most resistance in organizations where managers have not been used to managing remote staff members and so have never been forced to learn or get used to the skills.
lainga 3y ago
> When this happens, the landlord stops paying the mortgage on the office building or declines to refinance it. The bank or investors who made the loan then repossess the building. ... > Some of the biggest names in commercial real estate, like Brookfield and Blackstone, have defaulted... Does doing this have any impact on their creditworthiness? Or are they too big to, well, not lend to?
- rictic 3y ago
  Epistemic status: just some guy, override this if you get specialist info. Lenders are going to take this into account. I imagine that commercial real estate lenders are realists though, and expect their debtors to exercise their right to walk away from deals that go south. So lenders may consider it primarily a reflection of the state of commercial real estate, and secondarily a reflection of those companies' ability to operate in a bad market, and a fairly minor update on how the debtor will behave in future deals (because they already expect this behavior). Home mortgage borrowers defaulting is more unusual and may say more about the person, given that a high proportion of the population will hold onto their home even if the value of the home drops and the mortgage gets underwater. This expectation gets priced into the terms of the home loan. So an individual who's shown that they're willing to exercise the default option if the market turns has a different risk profile.
- ikiris 3y ago
  You can always just spin up a new entity if that's a problem, provided you have enough collateral to secure a loan. Credit rating really only is a people thing.
wiradikusuma 3y ago
"But there is a difference: Big property companies can keep doing business after they default and are even considered savvy for jettisoning distressed buildings. But homeowners who stopped paying their mortgages suffered a huge hit to their credit ratings and had to find somewhere else to live." ELI5: Why?
- idontwantthis 3y ago
  If you own 100 houses and you lose one you still have 99 houses. If you sold it at a loss because it was costing you too much to keep then you made a smart decision.
  - FireBeyond 3y ago
    You're not selling it at a loss though, you're defaulting on a loan obligation.
    - idontwantthis 3y ago
      That has its own cost. If that’s less than keeping it then it was a good decision.
    - theonlybutlet 3y ago
      Sadly it's gotten to the point where these guys are too big for the bank to be concerned with whether they do something unethical like default. The bank takes the knock,carries on as if it's business as usual in an effort to prop up their own revenue. Too big to fail I guess.
    - jankyxenon 3y ago
      Commercial loans are priced higher than residential. The higher risk of default is built into the economics. The bank also has rights on the property after it goes into default. They don't lose all their money.
- soupfordummies 3y ago
  Corporations are people... until they're not. Also money.
Vvector 3y ago
If I can't pay my $500k mortgage, it's my fault. If Blackstone can't pay their $100m mortgage, is it my fault as well.
- andsbf 3y ago
  Once you get married you get used to it :p
mewse-hn 3y ago
This is an interesting story. With simple supply and demand, we have massive oversupply for office real estate and significantly reduced demand - prices should drop, right? Except we have the bag holders, the landlords who retained leases and the banks who own the mortgages, they are going to fight tooth and nail to maintain the value of their assets, and they have deep pockets. I've seen one story where the writer made the argument that this is why we've been seeing "you must return to the office" stories - big business must have line go up, line must never go down. We'll see what happens but I sure hope there are no government bail-outs for this sector. Investment involves the risk of the asset depreciating.
- mediaman 3y ago
  What's the commercial office tenants' incentive to bail out CME debt funds?
  - anotherhue 3y ago
    If the tenant is large enough they may have stock price exposure through large investors such as pension funds.
- game_the0ry 3y ago
  > Investment involves the risk of the asset depreciating. The problem is that investors who have been working in the business since 2010 have no idea what a real economic recession looks like bc the fed keeps on swooping in to save the day. Asa result, a lot of investors levered up their books. The investment business is not a free market bc the downside risk is no longer present.
- muttled 3y ago
  Think the fact that the leases are coming due over the next few years rather than all at once will prevent a bailout? Might just be a slow decline like old factories in Chicago that sat vacant for a while and then got snapped up for commercial space since they were so cheap.
  - 3y ago
PedroBatista 3y ago
Let's keep in mind there are entire store fronts and even entire buildings vacant for +10 years (!!) in NYC where the rent or asking price not only didn't went down but up. (!!!) AFAIK the bet was to buy these assets almost totally leveraged and then wait for the ocasional fool or rich sheik or hot hip company to buy/rent them. If nobody buys them in years that's not the end of the World because the bank/investment fund is the one on the hook ( at least most of it ) and the city obviously doesn't want the prices to go down because that 100 Billion dollar budget needs these taxes. Everybody knows it will blow some day, in the mean time everybody fights to keep alive until the hopeful payday comes... and the prices keep ridiculously high and "half" of comercial real estate is vacant. Is this post-modern "capitalism"?
deleted 3y ago
[deleted]
SeanAnderson 3y ago
Just some food for thought. I was paying attention to this more closely earlier in the year. Here's the stock ticker for HPP. HPP is the predominate commercial REIT for the SF Bay Area: https://www.tradingview.com/symbols/NYSE-HPP/ https://www.tradingview.com/symbols/NYSE-HPP/ They're down ~75% from ATH in 2020, but up 75% since ATL six months ago. Also, keep in mind that commercial loans get divided into short-term/long-term groupings. A long duration for a short-term loan is 3 years and a short duration for a long-term loan is 5 years. So, there's this sweet spot between 3-5 years after economically-disruptive events where underwater loans created at the peak of the market start to get called. We're a couple of months away from the three-year anniversary of shutdown. IMHO, the next two years will be very rocky for SF as devaluations become real and start to significantly undermine city taxes, but the last six months have implied that fear was overstated and/or early in late 2022. It'll be interesting to see what happens next!
- tsunamifury 3y ago
  I’ve been walking the streets of San Francisco since day one of lockdown watching the unmitigated unidirectional closure of almost everything. And while the slow 4 year plus timeline has normalized most people to what’s happening, my long arc observation is that things are only going to get worse. The ball is about to drop now with the major revaluations lining up as high interest forces more walkways. The impact on city revenue will be significant right when problem think SF is pulling out of things. And the city knows it. They’ve projected it clearly but no one will listen.
colechristensen 3y ago
I'd bet a lot more people would be willing to go into offices if they... had offices. Surely not everyone as there are other reasons not to want to go in to an office. But a private room with a door and not having to hear/see/sit next to colleagues within arms reach would be a huge benefit. Open floor plans were just a race to the bottom ... well the bottom got hit now offices are empty. You can't just force folks to come in and accept the awful conditions because people will just say no now.
klipklop 3y ago
These huge landlords can leave units empty for years rather than drop prices. They need to be cut off from their near endless lines of credit that keeps distorting the commercial real estate market. Only then will prices correct. It’s killing small businesses in the US. A modest retail business or restaurant can’t afford the $20,000 a month they want for a tiny unit. Their control of the market is having harmful downstream effects on society.
- anotherhue 3y ago
  Yes, they've used the monthly rent price as leverage in other financial decisions, so if it was to fall as supply/demand suggests it should, they're left over-exposed. So better to eat the 1x loss than lose the 5x multiple.
- acdha 3y ago
  We’ve had a slew of “we need to end remote work to support downtown businesses” pieces in the local news, but almost every time there is an article about a business closing there will be a paragraph tucked in at the bottom that their landlord had refused to negotiate on a massive rent increase. I think the answer has to be a punitive vacancy tax: like if a commercial restaurant space is idle for 3 months, the tax rate for every property with the same commercial owner goes up every month. These properties being idle has ripple effects throughout a neighborhood which shouldn’t take years to recover.
  - yowzadave 3y ago
    I think a vacancy tax would be useful for the residential market as well--at least in New York, there are many luxury apartments sitting empty, because they are bought as investments and/or money-laundering efforts; the owner may never intend to live in them. This has a negative impact on a city, both in driving up prices for the actual residents, and in distorting the texture of a neighborhood. If you want to have multiple homes that sit unoccupied for most of the year, you should definitely pay a punitive vacancy tax.
    - 3y ago
londons_explore 3y ago
> But there is a difference: Big property companies can keep doing business after they default and are even considered savvy for jettisoning distressed buildings. But homeowners who stopped paying their mortgages suffered a huge hit to their credit ratings If the terms of a contract say I can hand over the property to the bank and walk away liability free, then I shouldn't take any kind of reputational hit (credit rating) for doing so. It's kinda sad that lawmakers and courts haven't done anything to rectify that.

61 points by TaurenHunter 3y ago

tsunamifury 3y ago

This feels like the exact situation that aligns with "Things go wrong very slowly, then all at once."

jeffbee 3y ago
It's good for basically everyone, except banks, when the lenders ultimately write down these losses. It frees the market from mental hurdles that discourage leasing activity and will lower rents more quickly. Lower commercial rents are a benefit to the other 99.95% of economic activity. The only thing I find really inexplicable is those few submarkets where vacancies are high and rising, net absorption is negative, and they are still expanding the inventory by 2% or more annually. That's truly baffling but maybe those investors have reason for optimism.
- tsunamifury 3y ago
  Like Austin? I think it’s mostly places where that expansion was planned and financed long ago right?
  - jeffbee 3y ago
    Austin is the really weird one, yes. I think they delivered 2+ million square feet of new space each of the last three years.

iwontberude 3y ago

Perhaps these banks can convince their local governments to rezone the land use to convert them into residential or mixed.

diogenescynic 3y ago
Commercial and residential buildings have different building codes. It would take years/decades to get approval and actually retrofit buildings. Cities like San Francisco chose to suppress residential housing and focused on commercial buildings because it was cheaper and required less infrastructure and made the city more money through payroll taxes. I'm glad they are being punished for their poor long term planning. Hopefully other cities learn from their mistakes and start to allow mixed use zoning, etc.
- malfist 3y ago
  > I'm glad they are being punished for their poor long term planning. This is a cold take. You shouldn't celebrate people getting hurt.
  - diogenescynic 3y ago
    There is a reason your hand hurts with pain after you touch a hot object. This teaches you not to do it again. This is just part of the grand experiment of the US--sometimes cities fail so other cities can learn/avoid the same mistakes.
- inasio 3y ago
  It may not be as hard as you imagine, see e.g., Manhattan a few weeks ago: https://www.bloomberg.com/news/articles/2023-02-23/nyc-s-biggest-office-to-condo-conversion-opens https://www.bloomberg.com/news/articles/2023-02-23/nyc-s-big...
  - diogenescynic 3y ago
    Manhattan's real estate laws are pretty different from the rest of the country. They already allow more mixed use real estate than anywhere else in the country. I think it's a bigger hurdle for a place like California and especially San Francisco to overcome (even more so quickly).
bequanna 3y ago

symlinkk 3y ago

> About 23% of office space in the United States was vacant or available for sublet at the end of November, according to Avison Young, a real estate services firm, compared with 16% before the pandemic Wow it’s literally nothing

diogenescynic 3y ago
A 50% increase is pretty significant. Especially if you're the landlord with a mortgage.
- superduperer 3y ago
  [dead]
- toomuchtodo 3y ago
  Landlord walks away, bank eats the loss, FDIC steps in if the bank mismanaged the risk and fails. Is FDIC going to fail? Obviously not, the government and central bank will not fail.
  - diogenescynic 3y ago
    So you want another round of regional bank failures so more money will move to JP Morgan? Can't see that going wrong.
    - toomuchtodo 3y ago
      If the insolvency already exists, are you advocating to pretend it doesn’t? There are too many banks in the US anyway. If community or regional banks fail, replace them with postal banking or FedAccounts if you’re concerned about lack of deposit account options. https://www.npr.org/2023/05/16/1176513695/does-the-u-s-have-too-many-banks https://www.npr.org/2023/05/16/1176513695/does-the-u-s-have-... https://www.congress.gov/bill/116th-congress/senate-bill/3571/text https://www.congress.gov/bill/116th-congress/senate-bill/357...

Devasta 3y ago

This sounds like its more about interest rates than it is people working from home, not that that'll stop anyone from trying to bring you back into the office anyway.

monero-xmr 3y ago

17% of all homeowners who defaulted in the 2008 mortgage crisis walked away strategically https://www.city-journal.org/article/the-menace-of-strategic-default#:~:text=The%20study%20estimates%20that%20in,to%2040%20percent%20in%20California https://www.city-journal.org/article/the-menace-of-strategic.... I distinctly remember stories on NPR during the crisis that browbeat homeowners who did this or thinking about doing this, claiming it was “unethical”. It’s the same story with companies that ask for loyalty then lay off with pleas towards efficiency. It’s always business, whenever someone plays towards my emotions in financial deals I want to shake them.

jeffbee 3y ago
> 17% of all homeowners in the 2008 mortgage crisis walked away strategically That is a quite misleading restatement of the facts. 2 of 144 million homes in the US were foreclosed in 2008, and 17% of those were deemed "strategic". That's 0.2% of homes.
- monero-xmr 3y ago
  I meant of defaults total of course. I edited the comment
nerdponx 3y ago
The article title is pretty funny. The menace of people taking advantage of a system that's been taking advantage of them all along!
wharvle 3y ago
> I distinctly remember stories on NPR during the crisis that browbeat homeowners who did this or thinking about doing this, claiming it was “unethical”. Whatever one thinks of the rest of the book, everyone should internalize the part of Graeber’s Debt in which he explains that connecting moral duty to personal debt under impersonal capitalism (if not, perhaps, to debt owed someone you know) is grade-A bullshit. It’s just business. Make the move that is best for you, period. Sometimes that’s default! It’s probably nice for lenders if people believe there’s some moral duty attached, but that moral duty is only ever gonna go one way, so don’t fall for it. They’re not doing you a favor. It’s business. They make profit because there’s risk.

deleted 3y ago

[deleted]

diogenescynic 3y ago

This seems to be proof that return to office is NOT happening despite the scare mongering articles.

jfghi 3y ago
Companies are trying. For many, return to office is impossible as it’s prevented by costs of living too high near offices, a spouse whose job requires a certain location, and children enrolled in school in a different location than office.
- diogenescynic 3y ago
  But why? Companies have never been more profitable and we've been working remotely for 3+ years now. What is the point in return to office if it isn't necessary, means less working hours available for employees (I can't work during my commute), and it costs companies more for real estate? I just don't see the point unless you're someone like Apple, Amazon, Microsoft and you have large real estate holdings you're worried about taking a loss on? But even then that seems small in the grand scheme of things, so I really don't get it.
  - dboreham 3y ago
    Not 100% sure, but we know that the management of companies were never concerned with the efficiency of their workers. If they were we wouldn't have open plan offices for software developers, fluorescent lights, pointless meetings, etc.
  - vidarh 3y ago
    It takes effort to manage a remote team. It's possible to coast by looking for superficial signs your team is busy when everyone is in the office. In fact, that same effect goes all the way up: You'll find higher management sometimes look for idiotic signs in their reports, such as whether they see them walking the floor. So then of course a lot of managers will be walking the floors and using looking for signs people are busy as a management technique. One of the few times I've ever gotten dinged in performance reviews was in one of my early roles managing a team when I was told I wasn't being seen being visible enough. There were no issues with productivity or deliverables, or staff retention or anything else - I wasn't seen engaging in the rituals that were expected. So after that I made an effort to walk around the office now and again, and all was well and nothing gained, except my reviews improved. Once teams of managers who bought into this approach are suddenly remote these people are forced to learn how to actually manage for outcomes, and that is a big step change in difficulty and effort. In other words, expect the most resistance in organizations where managers have not been used to managing remote staff members and so have never been forced to learn or get used to the skills.

lainga 3y ago

> When this happens, the landlord stops paying the mortgage on the office building or declines to refinance it. The bank or investors who made the loan then repossess the building. ... > Some of the biggest names in commercial real estate, like Brookfield and Blackstone, have defaulted... Does doing this have any impact on their creditworthiness? Or are they too big to, well, not lend to?

rictic 3y ago
Epistemic status: just some guy, override this if you get specialist info. Lenders are going to take this into account. I imagine that commercial real estate lenders are realists though, and expect their debtors to exercise their right to walk away from deals that go south. So lenders may consider it primarily a reflection of the state of commercial real estate, and secondarily a reflection of those companies' ability to operate in a bad market, and a fairly minor update on how the debtor will behave in future deals (because they already expect this behavior). Home mortgage borrowers defaulting is more unusual and may say more about the person, given that a high proportion of the population will hold onto their home even if the value of the home drops and the mortgage gets underwater. This expectation gets priced into the terms of the home loan. So an individual who's shown that they're willing to exercise the default option if the market turns has a different risk profile.
ikiris 3y ago
You can always just spin up a new entity if that's a problem, provided you have enough collateral to secure a loan. Credit rating really only is a people thing.

wiradikusuma 3y ago

"But there is a difference: Big property companies can keep doing business after they default and are even considered savvy for jettisoning distressed buildings. But homeowners who stopped paying their mortgages suffered a huge hit to their credit ratings and had to find somewhere else to live." ELI5: Why?

idontwantthis 3y ago
If you own 100 houses and you lose one you still have 99 houses. If you sold it at a loss because it was costing you too much to keep then you made a smart decision.
- FireBeyond 3y ago
  You're not selling it at a loss though, you're defaulting on a loan obligation.
  - idontwantthis 3y ago
    That has its own cost. If that’s less than keeping it then it was a good decision.
  - theonlybutlet 3y ago
    Sadly it's gotten to the point where these guys are too big for the bank to be concerned with whether they do something unethical like default. The bank takes the knock,carries on as if it's business as usual in an effort to prop up their own revenue. Too big to fail I guess.
  - jankyxenon 3y ago
    Commercial loans are priced higher than residential. The higher risk of default is built into the economics. The bank also has rights on the property after it goes into default. They don't lose all their money.
soupfordummies 3y ago
Corporations are people... until they're not. Also money.

Vvector 3y ago

If I can't pay my $500k mortgage, it's my fault. If Blackstone can't pay their $100m mortgage, is it my fault as well.

andsbf 3y ago
Once you get married you get used to it :p

mewse-hn 3y ago

This is an interesting story. With simple supply and demand, we have massive oversupply for office real estate and significantly reduced demand - prices should drop, right? Except we have the bag holders, the landlords who retained leases and the banks who own the mortgages, they are going to fight tooth and nail to maintain the value of their assets, and they have deep pockets. I've seen one story where the writer made the argument that this is why we've been seeing "you must return to the office" stories - big business must have line go up, line must never go down. We'll see what happens but I sure hope there are no government bail-outs for this sector. Investment involves the risk of the asset depreciating.

mediaman 3y ago
What's the commercial office tenants' incentive to bail out CME debt funds?
- anotherhue 3y ago
  If the tenant is large enough they may have stock price exposure through large investors such as pension funds.
game_the0ry 3y ago
> Investment involves the risk of the asset depreciating. The problem is that investors who have been working in the business since 2010 have no idea what a real economic recession looks like bc the fed keeps on swooping in to save the day. Asa result, a lot of investors levered up their books. The investment business is not a free market bc the downside risk is no longer present.
muttled 3y ago
Think the fact that the leases are coming due over the next few years rather than all at once will prevent a bailout? Might just be a slow decline like old factories in Chicago that sat vacant for a while and then got snapped up for commercial space since they were so cheap.
- 3y ago

PedroBatista 3y ago

Let's keep in mind there are entire store fronts and even entire buildings vacant for +10 years (!!) in NYC where the rent or asking price not only didn't went down but up. (!!!) AFAIK the bet was to buy these assets almost totally leveraged and then wait for the ocasional fool or rich sheik or hot hip company to buy/rent them. If nobody buys them in years that's not the end of the World because the bank/investment fund is the one on the hook ( at least most of it ) and the city obviously doesn't want the prices to go down because that 100 Billion dollar budget needs these taxes. Everybody knows it will blow some day, in the mean time everybody fights to keep alive until the hopeful payday comes... and the prices keep ridiculously high and "half" of comercial real estate is vacant. Is this post-modern "capitalism"?

deleted 3y ago

[deleted]

SeanAnderson 3y ago

Just some food for thought. I was paying attention to this more closely earlier in the year. Here's the stock ticker for HPP. HPP is the predominate commercial REIT for the SF Bay Area: https://www.tradingview.com/symbols/NYSE-HPP/ https://www.tradingview.com/symbols/NYSE-HPP/ They're down ~75% from ATH in 2020, but up 75% since ATL six months ago. Also, keep in mind that commercial loans get divided into short-term/long-term groupings. A long duration for a short-term loan is 3 years and a short duration for a long-term loan is 5 years. So, there's this sweet spot between 3-5 years after economically-disruptive events where underwater loans created at the peak of the market start to get called. We're a couple of months away from the three-year anniversary of shutdown. IMHO, the next two years will be very rocky for SF as devaluations become real and start to significantly undermine city taxes, but the last six months have implied that fear was overstated and/or early in late 2022. It'll be interesting to see what happens next!

tsunamifury 3y ago
I’ve been walking the streets of San Francisco since day one of lockdown watching the unmitigated unidirectional closure of almost everything. And while the slow 4 year plus timeline has normalized most people to what’s happening, my long arc observation is that things are only going to get worse. The ball is about to drop now with the major revaluations lining up as high interest forces more walkways. The impact on city revenue will be significant right when problem think SF is pulling out of things. And the city knows it. They’ve projected it clearly but no one will listen.

colechristensen 3y ago

I'd bet a lot more people would be willing to go into offices if they... had offices. Surely not everyone as there are other reasons not to want to go in to an office. But a private room with a door and not having to hear/see/sit next to colleagues within arms reach would be a huge benefit. Open floor plans were just a race to the bottom ... well the bottom got hit now offices are empty. You can't just force folks to come in and accept the awful conditions because people will just say no now.

klipklop 3y ago

These huge landlords can leave units empty for years rather than drop prices. They need to be cut off from their near endless lines of credit that keeps distorting the commercial real estate market. Only then will prices correct. It’s killing small businesses in the US. A modest retail business or restaurant can’t afford the $20,000 a month they want for a tiny unit. Their control of the market is having harmful downstream effects on society.

anotherhue 3y ago
Yes, they've used the monthly rent price as leverage in other financial decisions, so if it was to fall as supply/demand suggests it should, they're left over-exposed. So better to eat the 1x loss than lose the 5x multiple.
acdha 3y ago
We’ve had a slew of “we need to end remote work to support downtown businesses” pieces in the local news, but almost every time there is an article about a business closing there will be a paragraph tucked in at the bottom that their landlord had refused to negotiate on a massive rent increase. I think the answer has to be a punitive vacancy tax: like if a commercial restaurant space is idle for 3 months, the tax rate for every property with the same commercial owner goes up every month. These properties being idle has ripple effects throughout a neighborhood which shouldn’t take years to recover.
- yowzadave 3y ago
  I think a vacancy tax would be useful for the residential market as well--at least in New York, there are many luxury apartments sitting empty, because they are bought as investments and/or money-laundering efforts; the owner may never intend to live in them. This has a negative impact on a city, both in driving up prices for the actual residents, and in distorting the texture of a neighborhood. If you want to have multiple homes that sit unoccupied for most of the year, you should definitely pay a punitive vacancy tax.
  - 3y ago

londons_explore 3y ago

> But there is a difference: Big property companies can keep doing business after they default and are even considered savvy for jettisoning distressed buildings. But homeowners who stopped paying their mortgages suffered a huge hit to their credit ratings If the terms of a contract say I can hand over the property to the bank and walk away liability free, then I shouldn't take any kind of reputational hit (credit rating) for doing so. It's kinda sad that lawmakers and courts haven't done anything to rectify that.