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If NYC office space in a high rise, it cannot just be repurposed for something else.
Yeah imagine replumbing for residential. I guess you could gut it to the shell. Almost starting over at that point.
From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.
I’m not sure if it makes up for the loss in commercial real estate though, but I’d say some destruction of value and some transfer of value.
Redevelop the office space as residential space. Our cities are flush with office space but are squeezed for housing. Sounds like a win / win.
From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.
Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer…
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So good riddance? Do you really think someone who was able to buy real estate in Manhattan needs a handout? Also the money didn’t disappear, it went to people smarter or luckier than them who used to own the place before. Money doesn’t disappear.
That's not how market devaluation works. The "money" (paper money value) definitely was disappeared. It doesn't flow to someone else. Markets don't work like that. If I buy something for $100, the market value increases to $150 and then drops to $50, I've still lost $100 from the peak on paper. It didn't go to someone else.
The way I see it this is not the case now. Real money was handed over to buy these properties (noted by how many homes were bought for all cash). Money that was redistributed, printed by the government during the pandemic but has now been in proper circulation (thus as real as it gets) and which was paid off to a bunch of property owners who now have this as actual cash (or SPY holdings).
I’m a believer in reversion to the mean, and I think that’s what we will see with the office market and work from home. The technology to work from home existed before the pandemic. Why didn’t it take off before the pandemic if it works so well? We didn’t suddenly discover a new technology here. The use of that technology was precipitated by a transient force, and when that force is removed completely, things will re…
It is specifically a concept tied to repeated observations from a -random- process. That is, a process in which the values fluctuation over time (due to inherent randomness), but the -fundamentals- of the process (and its probability distribution) remain fixed -- along with its mean value.
What they're saying here is that WFH has caused a seismic shift -- and hence, a drastic change in the fundamentals of the process. Their whole point is that we're seeing different valuations in 2022 than in early 2020, it's not due random fluctuation -- its because the fundamentals of the process have changed -- along with its mean.
By definition, "reversion to the mean" only applies if ... the mean is fixed.
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Get rid of roads while we're at it. There are better and more efficient ways to transport goods into the city.
Wait, what?
There's also lots of interesting satellite data about how clean the air in cities world wide got when COVID lockdowns started. [1]
We don't need roads in cities. And definitely not multi-lane roads.
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Not a chance. This is completely unrealistic without major, major reconstruction. It's cheaper to deconstruct and build a new building in its place. Imagine the amount of plumbing you would have to redo for the toilets. There all sorts of codes for apartments, there must be so many windows, you need natural light in bedrooms etc
I doubt that practical considerations relating to renovating a building's plumbing are very relevant. NYC is known for an aggressive zoning policy against commercial-to-residential conversations, which they overtly defend as policy (to keep NYC attractive for business headquarters). If it were infeasible to undertake commercial-to-residential conversions for practical/construction reasons, the city wouldn't need to g…