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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

#121

Post by snow_mac »

BeFlatXIII wrote: post #111
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…

Those are all reasons why I hope the crash is as big as possible. Let's enjoy the show.

This is a stupid response. Remember 2009 when the housing bubble popped and it effected the entire economy? With billions tied up in commercial real estate, it will have a wider impact then just office buildings and retail locations

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

#122

Post by eduction »

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…

You are right that that there are too many incentives for trusted players to delay acknowledging reality (even if people are quibbling with the word “ponzi”). I am reminded of the scenes in Big Short when the banks for some time refuse to acknowledge reality and write down their mortgage bond positions.

Usually this sort of soft corruption is dealt with in real estate by incentives. For example the developer offers to pay your HOA fees for a year or two, or throw in some appliances, or whatever. The goal is always to artificially support a higher price through a back door discount that won’t devalue the whole building. There are commercial real estate equivalents to this like the developer paying for more customizations and improvements to the office space which are typically borne by tenants.

But my reckoning is this downturn is way too big and fundamental for those stunts to be enough. If it’s true office real estate values have not been written down then I suspect we are in for a shit show when everyone is forced to acknowledge reality.

(I am not in real estate but spoke regularly to industry folks and wrote reports during the last boom 2002-2008)

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

#123

Post by CydeWeys »

simple-thoughts wrote: post #99
kryogen1c wrote: post #69

Earlier quoted context omitted.

>> Current market prices for a lot of commercial real estate seems to be a ponzi scheme > Ponzi scheme? Yes. How in the world are these the top comment and top reply? Commercial real estate isn't a ponzi scheme. Like, at all. In any way, shape, or form. There are disparate actors making separate, uncoordinated decisions. There are single transactions being made delivering real value. There's no long term holdings fal…

In common parlance, an asset bubble is called a Ponzi scheme. Actual Ponzi schemes should be referred to as “rob peter to pay Paul” scams to prevent confusion.

Or we could just use the actual definitions of words rather than make everything worse and harder to follow along with.

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

#124

Post by salawat »

seanmcdirmid wrote: post #106
RyanAdamas wrote: post #42

Earlier quoted context omitted.

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…

LA really isn’t a desert. It is definitely near a desert, but the city itself isn’t very desert like. LA’s water use is a lot smaller than the farms around LA, so converting farms to residential use would actually save a lot of water.

>so converting farms to residential use would actually save a lot of water.

Pray tell, where would you source the food required to support said new residents if you're going to convert farm land already dedicated to supporting people who are already there?

Not sure about California's import/export situation with Ag output.

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

#125

Post by onlyrealcuzzo »

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…

> It is not in the interest of any of the players to decrease prices only the renters.

They don't have to increase rents as long as values kept increasing.

If office values go up x% per year, even if you're steeply cash-flow negative, as long as you're adequately leveraged and have low interest rates, you're still probably printing money.

It's almost as if artificially low interest rates manipulated the economy.

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

#126

Post by eganist »

WillPostForFood wrote: post #116
eganist wrote: post #15

Earlier quoted context omitted.

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 are…

windows mean a lot of office spaces would have empty cores Just change the code.

Not only is this a massive fire safety concern (considering why the requirement for two means of egress exists in residential building code), it's also a massive optics concern to stuff unhoused people into what'll effectively be written up by the press as a prison cell.

Changing code here is unviable.

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

#127

Post by NegativeK »

AnimalMuppet wrote: post #54
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…

> In the United States, the government holds hundreds of millions of acres of land in trust... True. > ... and it needs to be relinquished in part to help grow the actual base of humanity they hold stewardship over Almost entirely false. See, the land they hold, they hold because nobody ever claimed it under the Homestead Act. Nobody could figure out how to grow enough to feed a family, even with 168 acres of it. Thi…

I live in a state where the federal government owns a lot of that land that nobody could figure out.

The feds still try to sell it. Nobody buys it, because it's _still_ useless. It's a bad investment to buy shriveled land, build a residence on it that's incredibly far from basic necessities like gasoline and food, and then pay money to have water trucked out to your remote ass.

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

#128

Post by ed25519FUUU »

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.

Lol if you think people sell anything to the US government without price gouging then.

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

#129

Post by CydeWeys »

WillPostForFood wrote: post #109
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…

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. If you look at the urban core of many cities, they are full of old commercial buildings converted to lofts/residentia. The old bank district in LA was empty and in disrepair for decades, then a huge conversion boom in th…

Your average modern commercial skyscraper is less amenable to this kind of conversion than those older, shorter, smaller floor plate industrial/commercial buildings, though. And there's still a lot of opportunity cost in renovating a modern class A commercial building that isn't there for renovating a long-abandoned older industrial/commercial space; those have basically no opportunity cost because the existing uses are worthless.

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

#130

Post by zzzbra »

The reasoning in this article seems specious. Malls and offices are not the locus of the same activities. fwiw I've RTOed for three to four days a week and I love it. I think it will continue to gain currency with a lot of folks who are serious about their work at companies with other employees who are also serious about their work.
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