So when is this time bomb exploding? We've been reading about this since Covid ended.
Commercial real estate leases are very long.
The world’s empty office buildings have become a debt time bomb
131–140 of 206 posts
Re: The world’s empty office buildings have become a debt time bomb
#132Earlier quoted context omitted.
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…
Counter-point: SVB's funds were in treasury bonds. Their losses were entirely paper losses caused by the Fed's decision to aggressively raise interest rates.
The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds.
T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.
Re: The world’s empty office buildings have become a debt time bomb
#133Earlier quoted context omitted.
As cool as skyscrapers are as achievements of engineering, they're only a good solution when land is so expensive that the cost of the land dominates the cost of the building. Skyscrapers just aren't materially cost-efficient and don't scale well; as they get taller, a larger and larger percentage of the floorspace must be sacrified in order to accommodate structural elements and elevators. And then you have other pr…
That is definitely true. On the other hand, we also aren't fully accounting for the cost of sprawl. All infrastructure gets much more expensive with sprawl and that cost is usually equalized over an entire metro area with the urban core incurring very little infrastructure cost per person while the suburbs frequently come out negative on contributing tax$ - infrastructure cost. Carbon emissions which are higher with…
Yes, I'm not advocating for unchecked sprawl, all I'm saying is that there's a middle ground between suburban hell and Blade Runner dystopia, which brings me back around to my recommendation for six-ish-story buildings. European cities are the natural experiment that show how well even relatively "short" buildings can leverage the benefits of density.
Re: The world’s empty office buildings have become a debt time bomb
#134Accelerationist view: fine, let it happen. I cry no tears over corporate real estate. Build houses, build apartments, and make them cheap enough for even people who don't browse HN to buy.
Re: The world’s empty office buildings have become a debt time bomb
#135Earlier quoted context omitted.
That is definitely true. On the other hand, we also aren't fully accounting for the cost of sprawl. All infrastructure gets much more expensive with sprawl and that cost is usually equalized over an entire metro area with the urban core incurring very little infrastructure cost per person while the suburbs frequently come out negative on contributing tax$ - infrastructure cost. Carbon emissions which are higher with…
Yes, I'm not advocating for unchecked sprawl, all I'm saying is that there's a middle ground between suburban hell and Blade Runner dystopia, which brings me back around to my recommendation for six-ish-story buildings. European cities are the natural experiment that show how well even relatively "short" buildings can leverage the benefits of density.
I think we are pretty much in agreement.
Re: The world’s empty office buildings have become a debt time bomb
#136Earlier quoted context omitted.
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…
> A car is a machine to provide negotiating leverage in real estate markets. Now that's a good insight. It's amusing to read the comments from commercial real estate owners. There's a huge sense of entitlement. If they're losing money, somebody else must do something to make them stop losing money. Immediately. The commercial real estate business did this in 2006-2008, and in 1999-2000 in San Francisco. The mall indu…
> It's amusing to read the comments from commercial real estate owners. There's a huge sense of entitlement. If they're losing money, somebody else must do something to make them stop losing money. Immediately.
Many homeowners have the same attitude toward their home value. If their home value is going down, politicians need to do something. It's part of why reform is so hard. It's political suicide to do anything that could reduce home prices for existing home owners.
Real estate appreciation is basically an entitlement. I fully expect a bailout for commercial real estate.
Maybe this is how we get to the stars. Warp drive will be invented once the final campaign to allow infill development on Mars falls to a NIMBY campaign to preserve the character of the planet. (Actually I think something like this is a plot point in Kim Stanley Robinson's Red Mars novels...)
Re: The world’s empty office buildings have become a debt time bomb
#137Earlier quoted context omitted.
If people aren't working in cities, it remains to be seen what that does to housing demand. There are a bunch of cities that aren't great from an employment perspective and, in general, they're not a big draw for people to live there either.
Especially in cities which don't have "vibrant" downtowns; the downtowns full of Subways and McDonalds that close up at 5PM, leaving a desolate urban landscape reminiscent of zombie movies. What's going to happen to cities with downtowns that are nothing more than a collection of office buildings and the businesses that support the people who work there?
Even if a given downtown becomes a ghost town, the benefits of proximity to pre-existing infrastructure mean that the nearby urban areas will still benefit, and activity will just shift around slightly. Pittsburgh, PA is a good example of a city where the collapse of the downtown just moved all the activity to the surrounding neighborhoods, and now that those are thriving (though some more than others, naturally) that's starting to result in increased reinvestment in revitalizing downtown.
Re: The world’s empty office buildings have become a debt time bomb
#138I have felt since I was a teen in the 90s that the world would be better served if offices, schools, and factories didn't exist. I thought that this centralization just increased the costs for everyone. Why not keep things decentralized and utilize the technologies we've built to manage the communications and interactions? If there's a CNC machine with one primary operator, why can he have that and the material gets…
> Why not keep things decentralized and utilize the technologies we've built to manage the communications and interactions? (...) I do acknowledge that humans are social animals and there are benefits to face to face interactions, but these come at enormous costs. This sounds like a horrible vision for the future -- everyone completely separated, all interactions via video chat? All in the name of making sure we neve…
Nah. The thought is that you gain back the commute time and you can meet up with friends, family, and attend cultural events. You needn't confine all of your human interaction to the workplace.
Re: The world’s empty office buildings have become a debt time bomb
#139In 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…
> People want to live close to work, and without sufficient housing in cities, commercial real estate in big cities was very likely to suffer in the long term. Your logic doesn't really follow. Assume that you can't develop cities any more and growth is stifled - this isn't really happening nationally - it is in some cities - but let's assume it's happening nationally anyway. Office values would still go up (nominall…
A lot of technology companies are in suburbs/exurbs. Silicon Valley is a suburb. Boston/Cambridge basically didn't have a single tech company of note in the city by the mid90s and that mostly just changed when pharma/biotech moved in, the Seaport developed, and west coast tech companies opened up mostly Kendall Square satellites.
The whole era of Route 128 computer companies never had material real estate within the city limits.
Re: The world’s empty office buildings have become a debt time bomb
#140Earlier quoted context omitted.
Sounds like a regulatory failure; an unoccupied building shouldn't be able to retain book value.
It's not a regulatory issue. The issue is loan covenants negotiated between private lenders and borrowers. No one forced them to agree to those terms, and they are free to renegotiate at any time. But cities that want to retain vibrant downtowns should consider imposing some sort of vacancy tax on commercial real estate. That would give landlords an incentive to lease their space out at a lower rate rather than waiti…
Curious and just brainstorming a possibility here; is it possible for a city to rezone an existing property? Say a building that's unoccupied for N years triggers an automatic zoning review.