Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The world’s empty office buildings have become a debt time bomb

bloomberg.com

Post reply on HN
Print view View original

81–90 of 206 posts

Re: The world’s empty office buildings have become a debt time bomb

#81

Post by klyrs »

hn_throwaway_99 wrote: post #19

I remember an article not to long ago (like past 2 years or so) talking about how all these retail storefronts in Greenwich Village and SoHo in NY were closing because the rents became insane, and apparently (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents. I know redeveloping commercial buildings into residential is very expensive and difficult, but if…

> and apparently (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents.

As I understand it (but I'm not sure how applicable this is to any specific place), landlords can write down a loss set by either the last rent they received or the market rate in the neighborhood. If those losses are offset by gains elsewhere, they can zero their tax bill -- which, for landlords with diversified holdings, may be very large.

Re: The world’s empty office buildings have become a debt time bomb

#82

Post by mlyle »

triceratops wrote: post #75
jmclnx wrote: post #2

I could not get into the article. But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own. As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?

I don't understand this "SVB bailout" meme. If a company manufacturing lifesaving medication goes under and the government takes over its factories to keep manufacturing the medicine and prevent shortages, did all the patients get "bailed out"? Should they have known better than to buy their medication from only one manufacturer? Comments like this distract from real bailouts and moral hazards.

We had a longstanding regime and precedent for how bank defaults would be handled. Anyone with treasury experience knows about insurance limits and accordant risks.

Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank.

Then they were made whole at 100 cents on the dollar, when it probably would have ended up at 85 cents on the dollar on the amount over $250k the other way. This is pretty much the definition of moral hazard: why diversify banking now?

(Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty).

My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.

Re: The world’s empty office buildings have become a debt time bomb

#83

Post by freedude »

yeetcode wrote: post #10
jmclnx wrote: post #2

I could not get into the article. But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own. As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?

But SVB didn't get bailed out though? At least not the investors. Only the depositors were given their money back.

Who were the depositors?

SVB's depositors were primarily businesses with more than $250,000 in an account. Over 90% of depositors(google for exact percenatge) had more than 250,000 in the account.

So who was the bailout for? Not the average guy on the street...

Re: The world’s empty office buildings have become a debt time bomb

#84

Post by acdha »

NickM wrote: post #48
bobthepanda wrote: post #43

Earlier quoted context omitted.

IIRC a big issue is also the rise of REITs and other large landlords, which unlike small time landlords have a large enough portfolio to use the losses on a vacant property to deduct taxes.

Deducting losses doesn't make losses profitable, it just eases the sting of the loss a little bit. If you lose $100, and you get to deduct that $100 loss, then that saves you the taxes on $100, but unless the marginal tax rate is somehow greater than 100% then you have still lost money.

I think the question is around scale and distribution: if I own one office building, I’m going to make sure it’s as close to 100% booked as possible or I’m out of business. If I own a hundred office buildings in different cities, I can afford to eat a fair number of vacant spaces waiting for a high-revenue tenant and still make a lot of money - and if those vacancies aren’t randomly distributed that could mean that one downtown can be hit a lot harder than my entire portfolio.

Where I live this has also shown up in the retail/office split: some of the loudest voices calling for the end of telework are the same real estate moguls who jacked the ground level retail rents up and are now surprised that most of the good restaurants out, and most people don’t go across town for chains. They could afford that when all of the offices were booked but now most office workers are asking why they should be taking time away from work to buy mediocre $16 salads.

Re: The world’s empty office buildings have become a debt time bomb

#85

Post by rcme »

ahupp wrote: post #59
rcme wrote: post #28

Earlier quoted context omitted.

SVB’s bailout is estimated to have cost the FDIC 20B. The Fed also set up new lending programs to support the banks, which was essentially free* money.

The FDIC insurance fund is paid by banks, so ultimately depositors were "bailed out" by the broader banking industry.

I don’t really see how that’s relevant. Paying into the FDIC DIF is a legal requirement of the banks. It’s basically a tax. Somehow bankers have convinced everyone that they have impunity to mess up the financial system just because they pay a special tax.

And if the FDIC is really going to offer unlimited depositor protection, they’re going to need a lot more than the 100-200B in the DIF.

Re: The world’s empty office buildings have become a debt time bomb

#86

Post by bugglebeetle »

api wrote: post #65
orange_joe wrote: post #14

In my opinion this isn’t a consequence of the pandemic, but rather an inevitable outcome from the uneven pattern of building that vastly favored commercial real estate and prevented new housing. Even without teleworking, it was likely that jobs shifted toward suburban office parks as they had in the 80s to 2000s. People want to live close to work, and without sufficient housing in cities, commercial real estate in bi…

Seems to me that we've speed run the story of why suburban sprawl exist in the first place. A car is a machine to provide negotiating leverage in real estate markets. Dense urban centers, while awesome in many ways, easily lend themselves to the development of grassroots real estate cartels made up of property owners who block new construction to profit from real estate appreciation. As this occurs people are forced…

The “NIMBY cartel” here is any and all real estate investors, who have turned both housing and office space in large cities into a speculative asset class from which they expect to receive returns far beyond sanity. I wouldn’t gamble on them being disrupted any time soon. California, where Democrats have the firmest lock on the levers of power, has some of the most regressive, distortionary laws in place to protect them.

Re: The world’s empty office buildings have become a debt time bomb

#87

Post by chx »

orange_joe wrote: post #14

In my opinion this isn’t a consequence of the pandemic, but rather an inevitable outcome from the uneven pattern of building that vastly favored commercial real estate and prevented new housing. Even without teleworking, it was likely that jobs shifted toward suburban office parks as they had in the 80s to 2000s. People want to live close to work, and without sufficient housing in cities, commercial real estate in bi…

Do you see any indicators these bankrupt office towers are being converted to living spaces?

Re: The world’s empty office buildings have become a debt time bomb

#88

Post by freedude »

adverbly wrote: post #55

Does anyone have any recommended background reading on how bubbles and "time bombs" work? Why don't these things behave according to normal price supply demand curves where the price would slowly come back down to earth over time. I've seen this repeat time and time again across certain assets, and always being curious about the underlying mechanisms.

The problem with bubbles is you cannot know there was one until it bursts. Then and only then can you see the effects of it. Until then it is merely conjecture based upon delayed information.

Here are some searches I have benefited from reading.

https://mises.org/search-mises?search=bubble

https://brownstone.org/?s=%22financial+bubble%22

https://swisscows.com/en/web?query=%22financial+bubble%22+si...

Re: The world’s empty office buildings have become a debt time bomb

#89

Post by schainks »

hn_throwaway_99 wrote: post #19

I remember an article not to long ago (like past 2 years or so) talking about how all these retail storefronts in Greenwich Village and SoHo in NY were closing because the rents became insane, and apparently (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents. I know redeveloping commercial buildings into residential is very expensive and difficult, but if…

> I hope any assistance is conditional on converting buildings to productive uses like residential.

Do not _hope_. Write to your elected representatives, en masse, and demand they do this in any legislation written about the matter, or you will remove them from office.

Re: The world’s empty office buildings have become a debt time bomb

#90

Post by voz_ »

adverbly wrote: post #55

Does anyone have any recommended background reading on how bubbles and "time bombs" work? Why don't these things behave according to normal price supply demand curves where the price would slowly come back down to earth over time. I've seen this repeat time and time again across certain assets, and always being curious about the underlying mechanisms.

Because those curves are a psuedo-mythological abstraction - a lot in life does not actually work that way.
Post reply on HN