CRE vet says 30% of office buildings are 'basically worth nothing'

https://fortune.com/2024/02/25/office-commercial-real-estate-crisis-doom-loop-conversion-housing-subsidies-demolition/

by belter • 2 years ago

33 62 2 years ago

novaRom• 2 years ago

They literally need to be torn down. I’m looking at you, banks who own a bunch of run down 70s built properties in Cupertino praying Apple will somehow want to inhabit these terribly unattractive buildings. They won’t and the buildings will remain empty and a blight on the neighborhood.

quickthrower22• 2 years ago

Made of concrete and will last forever? Not in my back yard!

silon42• 2 years ago

Yup ... convert them into parks/green spaces, surrounded by some parking/bike paths or whatever is useful locally.

hef198986• 2 years ago

Parking lots? Just kidding... I hope...

mdorazio• 2 years ago

I really hope you’re making a NIMBY joke because the thing that’s needed is housing, not more parks.

MichaelZuo• 2 years ago

The land is worth a lot, even the shabbiest office building on top of the land is still worth quite a bit, it's the demolition and remediation costs that cancel the latter out, because they are also quite a bit.

Someone still needs to buy the land and then pay out of pocket for the demolition and remediation costs.

rich_sasha2• 2 years ago

Cheering on office space becoming worthless is fun, but if course nearby residential housing is next. Once you can really work for your company from anywhere, the value of your house within 30 min commute to your FAANG employer drops by quite a bit.

blitzar• 2 years ago

Once your FAANG company realises your they can hire someone who "works from home" for 5 figures instead of 7 figures, thanks to a modest cost of living in their different country, you are in real trouble.

LegitShady• 2 years ago

they can already do that.

ctrw3• 2 years ago

I heard that in the 1990s. Yet all the cheap Indians who were meant to eat my lunch are now expensive Indians I have lunch with.

quickthrower22• 2 years ago

Not sure. You wont get the best people by being cheap. If FAANGs are making monstrous profit they don’t want to rock the talent boat. If you have a company making crazy profit and the people making that happen get paid 5 figures those people just leave and get YC to pay 6 figures for a small slice of their next idea.

BeFlatXIII• 2 years ago

You still retain the timezone advantage for communicating with the bosses. Same language, too.

sokoloff2• 2 years ago

Hasn’t most of FAANG flipped back to RTO?

lupusreal• 2 years ago

Cheap housing? Oooh noooo. All the boomers who bought up multiple homes as an "investment", to extract rent from younger generations, will get hosed? Oooooh nooooo.

rich_sasha2• 2 years ago

Somehow, I suspect, people who can't afford houses now will still somehow be fucked. Not sure how but still.

atemerev• 2 years ago

But that’s good, isn’t it? Finally I could afford to buy something instead of renting.

worewood• 2 years ago

Good.

rightbyte• 2 years ago

I know some landlords that refuse to lower rent since they don't want to lower the book value of the property.

I.e. they rather have someplace empty than rent it out at the still quite high market rate.

There has to be some don't ask don't tell policy going with the banks for that to work?

bobthepanda• 2 years ago

Commercial loans are made on the basis of the rent, so lowering it may put a loan in default

piva003• 2 years ago

There should be some occupancy rate baked into the analysis as well, no? It doesn't make sense if it's mostly/purely on the basis of the rent, a property with 10 units that has one tenant on a sky high rent but otherwise is completely unoccupied is much worse off than a 10 units property with 10 tenants paying 20% of the sky high rent.

PeterisP• 2 years ago

It's a short term workaround, as it has no impact on real value and they have to pay the bank anyway without that income stream; so if someone feels their operation will go insolvent, that's a way to postpone it at the cost of some extra losses, but not prevent it.

LarsAlereon• 2 years ago

I like the idea of punitively high taxes for unoccupied properties to try to encourage landlords to rent at market rates.

bluecalm• 2 years ago

Land value tax is enough imo. Wasting land potential and speculation is heavily disincentivized by it. Penalties for not renting would be gamed in no time.

aussieguy12342• 2 years ago

Some unused office buildings are being converted into vertical farms. I'd like to see more of this. https://www.smithsonianmag.com/innovation/empty-office-build...

hef198986• 2 years ago

And vertical farms are among the most pointless things one can do... Transforming office space to housing would solve, or at least help solving, a real world problem so.

aussieguy12342• 2 years ago

This can be done, but it's not easy or cheap: https://theconversation.com/empty-office-spaces-can-be-conve...

Office buildings and housing blocks are designed differently.

globalise83• 2 years ago

In Germany the bloodbath in the commercial property market coincides with the legalisation of cannabis and the formation of local grow clubs on 1st April. Just saying!

discoinverno• 2 years ago

Can you elaborate on this?

ctrw3• 2 years ago

I too am a perpetual motion enthusiast.

russdill2• 2 years ago

Please sir, provide me with one subscription to your newsletter.

russdill2• 2 years ago

If you were struggling to find a less economic use for unused office buildings, have no fear, your search is over.

Devasta• 2 years ago

Gotta pump those numbers up, those are rookie numbers!

defrost4• 2 years ago

Ol' Gil's gonna collect big from commissions! I'll be eating food tonight!

pooper• 2 years ago

I find it interesting that somehow CRE meant nothing to me when I started reading the sentence but I quickly guessed it means Commercial Real Estate when I reached the end.

tmaly• 2 years ago

I recall seeing some famous mix use buildings out in the Pacific Northwest where the shops were on the ground floor and apartments above.

Imagine having that instead of some aweful looking building built in the 1970s.

As a kid growing up in a very small town, my grandmother use to tell me how she would walk a mile to the train station and ride up to Hartford during the Great Depression. All those train tracks are gone now.

It is hard to think we could have had a great rail system that was fast and efficient in this country.

CRE vet says 30% of office buildings are 'basically worth nothing'

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