‘Zombie Offices’ Spell Trouble for Some Banks - The New York Times
This is the real reason for companies wanting people back to the office. All this talk about collaboration and team spirit is just the publicly given reason for wanting people back to the office. The real reason is that now the owners of the buildings are losing money. Cry me a river.
So, I’ve thought about it and we have a housing shortage and an excess of offices. Seems like a solid solution. Takes a lot of work to make an office into a home, but it’s more profitable than leaving them empty.
But no, that would help people, and the cruelty is the point.
Yep, Ive been saying this for years now as well.
We have giant mostly empty office buildings which could be converted into mostly apartments, with even make shift permitted commercial zones for basically street vendor / convention booth style shops every 10 floors.
Instead it apparently makes more sense to not do this because it makes more sense to keep them empty, heated and lit 24/7, as basically a way to prop up the retail property market.
Capitalism is a farce, and it has already doomed us all: we have now breached the 1.5 C warming barrier, even more rapidly than most of the worst case scenarios predicted. Permafrost in Siberia and Northern Canada is already thawing and releasing methane.
Enjoy the collapse of human civilization in your own lifetime as people and governments continue to squabble and combat each other over scarcer and scarcer resources as our entire way of life becomes too expensive to maintain.
This is true, there are hurdles and there people actively working to overcome them and succeeding.
Would you like to know more? duckduckgo.com/?q=office+to+residential
Yes, thank you! I hate this constant narrative that back-to-office is always tied to commercial real-estate investments, or that there’s some magical tax incentive.
Usually what you have is: bank lends money to a commercial real estate company that owns the building. Commercial real estate company leases out office space to one or many companies. When those companies reduce or terminate their leases, the commercial real estate company struggles to pay their mortgage and defaults. Commercial real estate loses. Bank loses. And if commercial real estate had pooled investments to fund the building (along with bank loan), then those investors lose as well.
There are some large companies that own their own buildings, but that’s more of an exception.
Justifying the rental expense doesn’t really make sense, because they end up paying more in utilities in addition to the rent. If you’re still on the hook for a lease and have most employees WFH, just downsize when the lease ends or move everything remote if possible.
Seems like banks are worried about the loan holders defaulting and are pushing companies to bring employees back to bring up demand for commercial real estate?
You have never leased out a office building I can see. If you area going to spend 100,000's even into more to make the office space (as you build to suit inside the space as well) you wanna know you have it for so long. So it was good for biz as they knew they would have it for a decade maybe more and protect the investment. And it would also lock in the rent rates for that time so they could stave off inflating rents (there is a normally a year over year % increases built into the lease so the company that owns the building doesnt loose out too bad).
It was also something that C levels were spending their money on, they would own the property company and get even more out of it. They could spend a ton with a bank with the thought of I can tell you for sure biz X will be there for this many years and will pay the principal of the loan over this time, we also built space for other offices inside the building and we will give a discount to anyone that used or is referred by your bank. Again stacking security onto the loan they got, plus more to put on a plate of a potential biz start up.
It’s easier said than done, but it’s not that difficult. It’s mostly reconfiguration of plumbing and zone controls on HVAC. The electrical is easier to distribute.
If you commit to doing it the right way, and tear it down to the structure (but leave the facade alone), it’s not terribly difficult.
The problem is that the building owners want to do it cheap, and it won’t be cheap. It will be more economical in the long run than fully vacant building though.
Let those banks burn. I could not care less. Let the corporate real estate market burn with em.
We don’t need them.
Price of doing business. :)
No but seriously, it’s a bit annoying that these guys are holding everyone hostage in a way. If they don’t make bank, we all suffer? Seems wrong.
Not really. The office market is not that huge and the vacancies overall are also not that bad. It’s not like every single office is suddenly empty.
On the flip side: where these offices are located, housing is extremely expensive, so you could transform some offices to apartments, pivot projects currently in construction and maybe even demolish some older buildings.
These headlines are just a sign that the current management class is utterly incapable of reacting to anything but “line go up”. They can’t understand that they can’t exploit their way out of this for once.
Some.
We’re not talking about total conversion of all office spaces. Even if just 5% of the vacant offices can be converted, that’s already 5% less office space to worry about. Let the market decide.
Didn’t you and I already debate this?
Your argument is no different than saying the stone chipping business will collapse because pesky bronze smelters are making swords.
A broad portfolio doesn’t have a particularly heavy real estate position. Maybe some state pension schemes are - I think you mentioned the Canadian one last one - but it’s not like the office buildings become worthless from one day to then other. Some will remain occupied offices, some will convert into residential accommodation. Others will get torn down and redeveloped. The economy will adapt.
It’s not really a ‘could’ spill over, it definitely would.
A very high proportion of institutional investment is tied up in CRE. If enough defaults happen it might even be worse than 2008.
Doesn’t mean we should tip the scales in favor of CRE or the banks, though. If it comes to pass, we should nationalize the assets and socialize retirement (more). If we didn’t have all our retirement accounts in private markets our exposure to this kind of error wouldn’t be so high.
but in the specific situation no one really did anything wrong
Banks invested in over-leveraged positions and lost liquidity, loosing their client’s savings. If they want the benefit of privatized banking and reap the profits, they should be prepared to accept the losses. I don’t think that’s a controversial opinion.
No, I’m making a generalized statement about privatized banking. If we are constantly socializing the losses when private banking makes a critical error, then we should be socializing the profit, too.
If they end up causing a crash, I think it’s time we socialize the assets left over rather than ‘bailing them out’ for continued private operation. You suggested that nationalizing the assets would be too controversial in this environment, but I actually think intervening on behalf of private financial institutions and commercial real estate landlords would be more so.
I work IT on a union contract. I’m building a pension. My cousin retired at 48 from his union mechanic job and now makes 50% pay until he dies.
You should consider a union.
That’s a great conversation starter! “Hey, isn’t it interesting that talking about improving our working conditions is so offensive to the boss? Why do you think that is?”
If you’re interested in learning how to form a union at work, you can pick any big union and contact them with questions. It might help if they’re related to your field, but it’s not a requirement. I worked with the Office and Professional Employees International Union (OPEIU) and they were incredibly supportive. Organizing a union at work is the best decision I’ve ever made.
Not in the US. North of that. Canada Pension Plan through the government. If you work, you have a pension. It’s not great, but it’s something.
The one from work is because I am part of a union.
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