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

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

#171

Post by friend_and_foe »

kuhaku22 wrote: post #168
friend_and_foe wrote: post #167

Earlier quoted context omitted.

If that's how the cookie crumbles... What we are seeing is that with the proliferation of broadband internet, information workers don't need close proximity to one another. Cities are now largely obsolete, unfortunately. They're a choice whereas before they were a necessity, and arguments about how much someone loves the diversity of a city to the contrary, the emptiness of these office buildings speaks for itself. I…

> Cities are now largely obsolete, unfortunately. They're a choice whereas before they were a necessity, and arguments about how much someone loves the diversity of a city to the contrary, the emptiness of these office buildings speaks for itself. There are still plenty of physical-only things that cities exist for, and other benefits besides working. And when people talk about how much they love cities, office build…

And all those benefits cease to exist if people don't have to be there all day just to pay their bills. You don't go to the city to eat deep dish pizza, you go there to work and get paid, the deep dish pizza is just there so you can enjoy your life while you're there and spend some of that money you made. The choice people appear to be making is that they'd rather pay for their own home office and cook their own deep dish pizza.

Cities aren't entirely nonviable, just nonviable in their current iteration from the current paradigm. Their main attraction is that you have to go there to make good money. If cities are to survive into the future, they have to change from that to being attractive to live in regardless of your source of income. The only viable jobs in a city are ones that require workers to be present for practical reasons, such as dockworkers and service workers, and cities have evolved into service economies that cater to information workers, which is nonviable in an age of global connectivity. To survive, housing has to be the largest market for real estate development. Cities have to be made more walkable alongside this transition. Most cities cannot afford to make such a transition because their tax bases would dry up and they'd go insolvent. Those that can, some of them won't make the hard choices before it is too late. I expect at some point some cities will do it and survive, albeit very changed and different.

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

#172

Post by hn_throwaway_99 »

philwelch wrote: post #42
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 know redeveloping commercial buildings into residential is very expensive and difficult At a certain point, it’s expensive and difficult enough that you’re better off demolishing and rebuilding. There was a viral thread about this the other day: https://twitter.com/rossiadam/status/1672216345901932545

Yeah, I'm under no illusions about the cost required for these types of conversions/demolitions (though even in that thread there were some counterpoints about how conversions could still be done).

But still, we seem to fundamentally be at a place where we're going to need more housing instead of office space, so we need to make the transition at some point. For example, the new tallest building in Austin, TX, will be the under-construction Sixth and Guadelupe building. This building was designed as half residential/half office. All of the office space was originally leased to Meta, who subsequently pulled out and is now trying to sublease ALL of that space. Seems like it would be much better if they could just turn the entire building into apartments. Despite a recent pullback rents and housing costs in Austin are still completely nuts, and the additional housing stock would very easily be taken up.

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

#173

Post by ajmurmann »

tehjoker wrote: post #151
kibwen wrote: post #133

Earlier quoted context omitted.

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.

For what it's worth, I thought blade runner was cool in that respect. Parts of Blade Runner were dystopian, but not the idea of having a big city (the advertising was dystopian iirc). My feeling is that if we have a strong urban core, we can rescue the countryside and nature from over-development. It's also nice to walk around cities. I have to drive everywhere outside of urban areas which sucks.

It also was surprising to me to learn that the Blade Runner city is considered dystopian. I had some of my greatest times in Asian mega cities like Shanghai and Tokyo. I think the key is to get away from subjective preferences in either direction, price in externalities, remove red tape, but also direct or indirect subsidies in either direction which right now benefits the suburbs by paying for their huge infrastructure needs. Maybe the result will still be that everyone wants to live in a SFH, but I think reality is gonna be a more diverse mix of options and in general more density because it's not economical. We also have a lot of people who right now cannot afford any home and I'm sure they'd prefer a shoebox between hundreds of other shoeboxes over a whole in the ground under a freeway bridge

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

#174

Post by rcme »

gorjusborg wrote: post #125
gorjusborg wrote: post #122

Earlier quoted context omitted.

I'm not sure you understood what I'm saying. My point is that the FDIC refunding more than 250k wasn't a bailout of the banks because FDIC insured banks are the ones who fund the FDIC.

The main point to take away is that healthy banks are on the hook for paying depositors through assessments charged by the FDIC.

My point is that the FDIC DIF premiums and assessments are mandated by law and are thus a tax levied on banks. So the you’re trying to make it seem like the banks are managing the risk themselves but another way of looking at it is that all FDIC operations are funded via tax revenue, just like everything else the government does. Ultimately, the FDIC is backed by the full faith and credit of the US.

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

#175

Post by nradov »

voisin wrote: post #146
nradov wrote: post #127

Earlier quoted context omitted.

This is exactly why we need to eliminate all defined benefit pension plans and switch workers to defined contribution plans such as 401(k). Traditional pension plans are just too risky because the managers often make bad decisions. Defined contribution plans invested in low-cost target date mutual funds are much safer.

Defined Contribution plans have been the trend in the private sector for three decades now and generally are seen as less attractive to pensioners who now hold all the risk for retirement. Do you have evidence that only DB plans have office real estate exposure?

Most target date mutual funds have some REIT exposure but it's limited and overall they are more broadly diversified than most managed pension funds. The risk with target date funds is very low, and if one worker makes a bad 401(k) investment selection it doesn't impact other workers. So defined contribution plans are more resilient overall and less likely to suffer catastrophic failures.

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

#176

Post by nradov »

bashinator wrote: post #140
nradov wrote: post #108

Earlier quoted context omitted.

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.

Cities in most states have some freedom to rezone existing properties. They already conduct periodic zoning reviews when updating their master plans, and real estate owners can request zoning variances at any time. So I don't know that a vacancy trigger would really change anything.

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

#177

Post by closeparen »

nunuvit wrote: post #156
closeparen wrote: post #152

Earlier quoted context omitted.

Steel and concrete buildings are way quieter than wood in practice.

Yeah, but they make shorter buildings out of steel and masonry, too. Next time you're apartment hunting, you can call ahead and ask whether the building is lumber construction, if you're not sure.

I’m pretty familiar with the “luxury apartment” offerings in the Bay Area and they’re pretty much all steel towers or wood 5-over-1s. I’m told 5 stories is the standard because that’s what you can make out of wood; an extra story or three isn’t worth it with the shift to more expensive materials.

Some of the steel towers have their cheaper apartments in wood podiums; have to be careful.

I live in a 10-story condo. 9 or 10 stories seems about the lowest not to be made out of wood. Even these are very rare compared to =15.

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

#178

Post by vkou »

marcosdumay wrote: post #159
vkou wrote: post #104

Earlier quoted context omitted.

> Our modern cities are clearly not economically viable (proof of that is that people can't afford to live in them) No, that's not sufficient proof. You'd need unaffordability, and high rates of rental vacancies to prove that. Most of the unaffordable cities have near-zero vacancy rates. "That place is too crowded now, nobody goes there anymore."

Well, you can only have high rates of vacancies if you have plenty of housing.

If the cities were net-negative economically, there'd be a net outflow of people from them (As anyone who can't make ends meet on the margins would pack up, leave, and create those vacancies.)

Yet, that's not the case. There's an economic pull to cities, the are, on the net, more productive than the countryside (Because the proximity of people makes the cost of bringing goods and services to market very, very low.)

The cost of land, in the long-term, rises to meet the economical productivity of an area. The reason that cities are so damn expensive is because they are productive.

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

#179

Post by closeparen »

danaris wrote: post #165
closeparen wrote: post #145

Earlier quoted context omitted.

Yes and these buildings are awful to live in. Paper mache boxes with no sound isolation. If you are going to live in an apartment in the US, it's very important to live in a tower, even on a low floor, and not a mid-rise, because extreme engineering and exotic materials (relative to US construction norms) are necessary to make multifamily living tolerable.

That seems like an extraordinary claim that requires extraordinary evidence. It seems intuitive to me that just because mid-rises are likely to be built using the cheapest materials that satisfy building codes doesn't mean it's impossible to build them with better sound isolation and other amenities that improve living there. So can you provide some reason why mid-rises must be that way, as opposed to the Almighty Ma…

As I understand it, buildings don’t pencil out with more expensive materials until they are also much taller.

Insofar as people want to correct the Almighty Market on housing, they ban mid rises entirely. I don’t think there’s a political constituency for “apartments, but good” and supply is way too constrained for developers to care. Maybe we could at least get some kind of testing/disclosure of acoustic properties since it’s so hard to tell on a tour.

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

#180

Post by gorjusborg »

rcme wrote: post #174
gorjusborg wrote: post #125

Earlier quoted context omitted.

The main point to take away is that healthy banks are on the hook for paying depositors through assessments charged by the FDIC.

My point is that the FDIC DIF premiums and assessments are mandated by law and are thus a tax levied on banks. So the you’re trying to make it seem like the banks are managing the risk themselves but another way of looking at it is that all FDIC operations are funded via tax revenue, just like everything else the government does. Ultimately, the FDIC is backed by the full faith and credit of the US.

> funded via tax revenue, just like everything else the government does

FDIC assessments and taxes are different. You can over-simplify mentally to a tax, but that doesn't make it true.

The FDIC runs more like an insurance provider than a run-of-the-mill government agency.

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