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Office real estate crash will be so sharp, values unlikely to recover by 2040

fortune.com

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Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#11

Post by etimberg »

ricardobeat wrote: post #9
RyanAdamas wrote: post #4

This is why changing zoning laws is so important. These buildings and their underlying values can be saved by 'going condo' or conversion to smaller unit spaces for the purpose of housing so many who are struggling with massive increases to rent. Most rent does not increase because of increased asset expenses, it increases because of increased owner expenses and that quickly becomes a slippery slope in the face of ad…

> the government holds hundreds of millions of acres of land in trust and it needs to be relinquished How would relinquishing that help, is access to land a real issue? You can probably already buy a lot for cheap right now, but it will be far from urban centers and won't be habitable without a ton of investment. Would have zero effect on housing.

Conversion of office property to residential also requires a lot of capital which seems forgotten by a lot of the folks championing this kind of conversion. It's not as simple as building some interior walls and calling it a day

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#12

Post by bell-cot »

xbmcuser wrote: post #5

Current market prices for a lot of commercial real estate seems to be a ponzi scheme especially in the US. It is not in the interest of any of the players to decrease prices only the renters. Local government need higher prices as without the high property prices their property tax receipt will tank making them unable to meet their budgets. Banks need higher prices as they are highly leveraged and will be on the hook…

Ponzi scheme? Yes.

Lots of major players who really don't want the Ponzi pyramid to collapse? Yes.

But, long-term, no Ponzi pyramid can avoid collapse. Black money is not infinite, and can get skittish when the music starts fading. A central bank printing money can prop the pyramid up...for a while. But that only makes the collapse bigger, and takes more of the central bank's economy down with it when it finally does go.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#13

Post by bell-cot »

king_magic wrote: post #7

Zero sympathy. Happy for the tyranny of the office to fade away.

> Zero sympathy.

For Wall Street & the billionaires? Reasonable.

But the crash will cause vastly more suffering for normal people than for the 0.1%.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#14

Post by baremetal »

etimberg wrote: post #11
ricardobeat wrote: post #9

Earlier quoted context omitted.

> the government holds hundreds of millions of acres of land in trust and it needs to be relinquished How would relinquishing that help, is access to land a real issue? You can probably already buy a lot for cheap right now, but it will be far from urban centers and won't be habitable without a ton of investment. Would have zero effect on housing.

Conversion of office property to residential also requires a lot of capital which seems forgotten by a lot of the folks championing this kind of conversion. It's not as simple as building some interior walls and calling it a day

Having remodeled commercial buildings I can say adding plumbing to a finished commercial building is a nightmare.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#15

Post by eganist »

spokeonawheel wrote: post #6

crazy idea: us govt scoops up all the office real estate at the crash and converts to low income housing for free. Solve two crisis at once, the obviously coming real estate crisis and the homeless crisis. All for the cost of a handful of F35s If only politicians had an iota of strategy.

Code requirements for housing are far more strict. One of the reasons you don't regularly see office building conversions is because homes require things like windows for each bedroom or at least one bathroom per home.

While the bathrooms can be fixed with effort, windows mean a lot of office spaces would have empty cores as only the square footage near the outer edge of the building would be used.

(This isn't my area of expertise. I'm leaning on there being someone closer to this topic here on HN to opine, but this is at least how I understood it from real estate developers who noted to me why they're avoiding office space conversions)

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#16

Post by nocoiner »

RyanAdamas wrote: post #4

This is why changing zoning laws is so important. These buildings and their underlying values can be saved by 'going condo' or conversion to smaller unit spaces for the purpose of housing so many who are struggling with massive increases to rent. Most rent does not increase because of increased asset expenses, it increases because of increased owner expenses and that quickly becomes a slippery slope in the face of ad…

This is not really how a lot of this works.

Zoning is basically irrelevant - the problem is that the cost of converting an outmoded commercial building to residential is usually within the same order of magnitude as knocking it down and putting up something built for purpose. I would bet real money that there aren’t more than a handful of municipal governments that would die on the hill of maintaining existing zoning restrictions if they had viable proposals to convert vacant commercial buildings.

Those millions of acres owned by the government are mostly desert and national parks and in any event there’s no shortage of privately owned undeveloped land closer to existing cities (or hollowed out existing cities that are ripe for a renaissance).

Also, just nitpicks, but when was $5k a down payment for a house? 1955? And BlackRock isn’t a hedge fund. You might be thinking of Blackstone (also not a hedge fund, but they own portfolio companies that are buying up a lot of single-family housing and turning them into rental properties, which is evidently extremely lucrative but I find incredibly distasteful).

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#17

Post by ClumsyPilot »

spokeonawheel wrote: post #6

crazy idea: us govt scoops up all the office real estate at the crash and converts to low income housing for free. Solve two crisis at once, the obviously coming real estate crisis and the homeless crisis. All for the cost of a handful of F35s If only politicians had an iota of strategy.

it is really easy to make boatloads of money as a government if you get off your ass and actually play the game.

Step 1 -aquire land and property Step 2 - Build mass transit / metro and invest in the area, proterty price goes up 3x Step 3 - Rent out, or sell

If some one refuses to sell land ar step 1, buld transit where you actually do buy land

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#18

Post by endisneigh »

spokeonawheel wrote: post #6

crazy idea: us govt scoops up all the office real estate at the crash and converts to low income housing for free. Solve two crisis at once, the obviously coming real estate crisis and the homeless crisis. All for the cost of a handful of F35s If only politicians had an iota of strategy.

[flagged]

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#19

Post by baremetal »

bell-cot wrote: post #13
king_magic wrote: post #7

Zero sympathy. Happy for the tyranny of the office to fade away.

> Zero sympathy. For Wall Street & the billionaires? Reasonable. But the crash will cause vastly more suffering for normal people than for the 0.1%.

I don't think most people fully grasp what is likely coming down the pike.

Normalcy bias is a helluva drug.

Re: Office real estate crash will be so sharp, values unlikely to recover by 2040

#20

Post by jdross »

spokeonawheel wrote: post #6

crazy idea: us govt scoops up all the office real estate at the crash and converts to low income housing for free. Solve two crisis at once, the obviously coming real estate crisis and the homeless crisis. All for the cost of a handful of F35s If only politicians had an iota of strategy.

Cheaper to tear down commercial RE and rebuild multi-family than to attempt a conversion. Floor plates made of high tension steel can’t be broken up for replumbing, usually you’ll want or need elevators & interior courtyards needed for lighting. There are very different water & electrical requirements

Maybe there’s a creative way to do low-income housing meaning only a window or two in the whole unit, no individual HVAC control (set by building) lots of artificial light, and someone more knowledgeable than me would need to explain the power & plumbing tradeoffs. Maybe you could basically replumb & wire on top of the floorplates, taking a few inches from ceiling height?

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