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I wouldn't be surprised if it's even more straightforward than that. They've got some very expensive office space that's extremely under-utilised, and they're p
by regularfry 2y ago
I wouldn't be surprised if it's even more straightforward than that. They've got some very expensive office space that's extremely under-utilised, and they're probably at risk of the rent getting raised on a lot of it unless they can increase footfall.
- ghaff 2y agoIf you have way-underutilized office space that you can sell or not renew leases on, you can shed it like a former employer was doing when I left. Otherwise, there's basically no value in how many or few people are filling the space unless they're actually delivering some business value to the entity paying for the lease. (Unless, maybe, it relates to promises made to some local jurisdiction that gave you tax breaks.)
- regularfry 2y agoA lot might depend on how long a lease was signed, and what penalties there might be for breaking it.
- ghaff 2y agoSure. Breaking leases have costs. But the cases I have some direct experience with are generally simply not renewing them.
- galleywest200 2y agoFor what it is worth, Amazon has built (as opposed to just rent) very large buildings in Seattle, WA and Bellevue, WA. It could be a sunk-cost fallacy sort of deal going on here. They even built giant ~~testicles~~ glass spheres with plants in them.
- dgfitz 2y agoI don’t think I buy that answer. They’re on the hook for the money either way. Ego?
- notyourwork 2y agoThey lease a lot of buildings too. Paul Allen owned a bunch of the area.
- jacobr1 2y agosubleasing is an option, though demand is down across the board
- underlipton 2y agoThat's assuming no corruption involved, which would be weird, given the previously-mentioned circumstances. Who stands to lose if the building is sold at a loss or the lease isn't renewed? Are they connected to the executives pushing the RTO decision in any way? It need not even be a direct connection. Who's got CRE MBS in their portfolios? Whose friend does?
- DanielHB 2y agoYou underestimate the "it looks bad on my numbers" effect. For example, if you have real state that you can't get rid of, for the company it doesn't matter if the people use it or not if it doesn't affect productivity. But it sure does matter for some accounting department close to the CEO. It is like that old adage that goes along the lines "Tell me the incentives and I will tell you the outcomes"
- nateglims 2y agoI think it's even more basic: they think it will be just like it used to be before 2020.
- neilv 2y ago> they're probably at risk of the rent getting raised on a lot of it unless they can increase footfall. Raised, because the property owner has other investments that are affected by the presence of people, such as nearby restaurants and stores? Or is a valuation of the office property itself affected by how many people are physically in the building or area?
- umeshunni 2y agoThat makes very little economic sense.
- schmidtleonard 2y agoIt makes sense if a counterparty extended Amazon a benefit in exchange for driving foot traffic and now the benefit is at risk because they are not driving the foot traffic.
- umeshunni 2y agoHow would that even make sense at Amazon's scale? A company that makes $500B in revenue is somehow beholden to some random commercial real estate company that owns a few billion in commercial real estate.
- refulgentis 2y agoI don't understand, like, I can see each handwave - 1. They're paying a lot in rent. 2. if they don't have workers in the office, then, adjacent spaces for ex. food service is less valuable. 3. If adjacent space is less valuable, the landlord is motivated to raise Amazon's rent to compensate 4. Therefore, they're making people go back to work to avoid rent increases 4 years on, and it seems a little bit odd it took that long for it to play it. But it seems (much) cheaper and sensible to find somewhere else to rent than give in to a threatening landlord who sees you as responsible for any shortfalls in adjacent revenue, instead of the anchor tenent you are.
- reaperducer 2y agoIf adjacent space is less valuable, the landlord is motivated to raise Amazon's rent to compensate Real estate is very much driven by supply and demand. Moreso than many other industries. If the adjacent space is less valuable, it gives Amazon leverage to lower its rent.
- therockspush 2y agoYou're right about Amazons leverage. In Santa Clara county we have our local behemoths trying to get their property valuations dropped. https://www.bizjournals.com/sanjose/news/2024/11/08/tech-google-county-property-tax-billions-appeals.html https://www.bizjournals.com/sanjose/news/2024/11/08/tech-goo... The way commercial real estate lending is tied to lease rates usually means its almost impossible for them to go down unless you operate at these scales. Most commercial landlords around me would rather have prime main street spots stay empty than refinance because of lower lease rates.
- deleted 2y ago[deleted]
- hn72774 2y agoAmazon owns most of its downtown Seattle real estate. Low occupancy means balance sheet write downs, and higher cost of capital.
- heavyset_go 2y agoThe ownership class has stake in commercial and prime residential real estate. You don't have to look further than that.
- grugagag 2y agoI speculate this is part of it, and this is tied to a lot of key people who can enforce this type of move. Big companies also want to legitimize their business by having a presence. Without any presence virtually anyone start competing them, chipping at their business.
- DanielHB 2y agoBoth your arguments seems a bit tinfoil-hat. Grandparent is implying that all the execs making the RTO decisions are personally invested in business real state (why would multiple execs own a bunch of downtown real state?). Although a point could be made for companies who own their real state wanting to prop its value up before liquidating (so a pump and dump) it still stretches believability. You are implying most companies really think that much about long-term unquantifiable effects. I can see a better argument being made about executive with big ego likes sitting at the top of his ivory tower (his top-level corner-office) looking over the masses below him.
- grugagag 2y agoIm not implying most companies think long term, just the very large ones and their interests are tied to some commercial real eastate they don’t want to lose on. Im not sure I understand your tinfoil hat argument here, at least it doesn’t make sense to me in this context.
- heavyset_go 2y ago> Grandparent is implying that all the execs making the RTO decisions are personally invested in business real state (why would multiple execs own a bunch of downtown real state?) That is not what I am implying. The owner/investor class have portfolios that depend on commercial and prime real estate holding, and continuing to increase in, value. They might not personally own buildings themselves, but they own companies and financial instruments that do. Maybe execs themselves are lucky enough to be that asset rich, maybe they aren't, but it's their jobs to call the shots based on the desires of their respective boards.
- samtho 2y agoAmazon also has mastered the art of getting cities to bend over backwards for them, offering tax breaks and land because Amazon wants to bring X number of jobs that pay over $100K/year to the city. Well, now these offices are vacant and the high paid workers are not even in the city like Amazon promised. The cities that helped Amazon foot the bill for their offices are not super happy and want either the results they promised or for Amazon to pay back what the city had invested.
- nradov 2y agoHuh? I've never seen a commercial office space lease that had rent increase terms based on "footfall". You're not making any sense.
- Dr_Birdbrain 2y agoI’m not familiar with this—why would the rent be related to the amount of footfall?