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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

#81

Post by dantheman »

quags wrote: post #77
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…

Property taxes won’t change if these values collapse. A city may reassess values in the future but that just means some people go up and some go down with the final receipts the same. An owner may walk away from a Mortage and the bank will pay the taxes. If taxes are not paid you move into tax liens that trade and may be able to get the property just for the taxes on it. In the end property taxes get paid.

How do receipts stay the same?

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

#82

Post by [deleted] »

breckenedge wrote: post #58
williamcotton wrote: post #49

Earlier quoted context omitted.

How is it a ponzi scheme? There is actual real estate being bought, sold and rented. What has happened is that demand for office space has dropped dramatically. The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. Then these properties will more likely find tenants.

> How is it a ponzi scheme? Because it’s credit built on credit. It’s not an intentional Ponzi scheme (maybe). > The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. It’ll be prohibitively expensive for most properties to convert them to residential. They might as well be demolished for their land value.

[deleted]

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

#83

Post by Jabrov »

breckenedge wrote: post #58
williamcotton wrote: post #49

Earlier quoted context omitted.

How is it a ponzi scheme? There is actual real estate being bought, sold and rented. What has happened is that demand for office space has dropped dramatically. The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. Then these properties will more likely find tenants.

> How is it a ponzi scheme? Because it’s credit built on credit. It’s not an intentional Ponzi scheme (maybe). > The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. It’ll be prohibitively expensive for most properties to convert them to residential. They might as well be demolished for their land value.

That still doesn’t make it a Ponzi scheme. Don’t just throw the word around.

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

#84

Post by dmbche »

endisneigh wrote: post #80
dmbche wrote: post #76

Earlier quoted context omitted.

It's only an opportunity for government as zoning/regulations have to be adjusted for this situation. If that happens, and it's made reasonable to convert offices into housing, pretty easy to make money from that. (Edit: by renting/selling the housing - if that wasn't clear yet) What are we gonna do with the offices anyway? Keep em empty for old times sake?

Why would the owners of the office space sell? They could do this themselves if it’s that lucrative.

Sure - that's also a great option, the government will make money on the permits and taxes from converting and selling/renting. Still better than keeping everything empty.

It's possible the owners wouldn't want to start running a renting to tenants business if they were renting office space, since it's less money per client and more maintenance/running costs. The governement could very well be better at handling this than private companies, and would companies would sell for liquidity instead of future profit, and go into something else.

Esit: I'm no expert on housing, but this would disrupt wildly the value of housing in the city, since the benefit of being close to offices vanishes and housing is all over. Profits from exploiting the buildings could very well be less than interesting for private companies.

It could also be governement policy to sell this housing to individuals instead of renting, creating a lot of capital to be used by individuals (since mortgages are tough to reach for most people today, this could be nice economic leverage for individuals, if they could buy cheap housing and mortgage it.

Not sure what that'd do to the economy but I doubt it would be bad.

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

#85

Post by andsoitis »

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…

> Current market prices for a lot of commercial real estate seems to be a ponzi scheme especially in the US

A ponzi scheme is fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

Where is the nonexistent enterprise? How is money from later investors used to hoodwink the first investors by pretending there's quick returns?

I think you are looking for a different characterization of commercial real estate for it isn't a ponzi scheme.

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

#86

Post by ddkto »

dantheman wrote: post #81
quags wrote: post #77

Earlier quoted context omitted.

Property taxes won’t change if these values collapse. A city may reassess values in the future but that just means some people go up and some go down with the final receipts the same. An owner may walk away from a Mortage and the bank will pay the taxes. If taxes are not paid you move into tax liens that trade and may be able to get the property just for the taxes on it. In the end property taxes get paid.

How do receipts stay the same?

Property taxes are usually set as a fixed amount to be collected, and the tax % is back calculated. In practice, this means that the only thing that matters is the value of a property relative to the rest of the city.

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

#87

Post by nocoiner »

RyanAdamas wrote: post #42
nocoiner wrote: post #16

Earlier quoted context omitted.

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…

Yes, I'm making a reference to the time when these massive residential building projects began as a juxtaposition for today. The costs of just becoming a renter today are similar to what it took to own a home previously. Zoning is not irrelevant it is the absolute cause of these areas essentially becoming Special Economic Zones which are now, in historic fashion, about to flounder and fade unless the powers that be c…

LOL, was that an Andy Fastow reference? Deep cut, I love it, even if I’m still not sure how it applies here.

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

#88

Post by kdmccormick »

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…

Develop the conserved federal land? No way. Let's redevelop some of the effing parking lots and one-storey strip malls that take up half the land space in most US cities.

Real life example, Assembly Square near Boston: https://twitter.com/ScoutSomerville/status/12117083803913666...

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

#90

Post by dmoy »

m0llusk wrote: post #59
williamcotton wrote: post #49

Earlier quoted context omitted.

How is it a ponzi scheme? There is actual real estate being bought, sold and rented. What has happened is that demand for office space has dropped dramatically. The proper market reaction is to spend the money to convert these office spaces to some other use, perhaps residential. Then these properties will more likely find tenants.

high demand, limited inventory, fifteen years of near zero interest rates mean prices have been set in a market environment of extreme distortion

Sure, but the word to describe it may be "bubble", not "ponzi scheme".

E.g. you can't say a failed startup is a ponzi scheme because it loses a bunch of money. A ponzi scheme is a very specific type of fraud.

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