In 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 big cities was very likely to suffer in the long term. These foreclosures are actually a good thing as they will allow big cities to rebalance the allocation of their scarcest resource — land.
I worked in a suburban office park before the pandemic. My commute to the office park wasn't substantially shorter than when I commuted to a downtown office and the office park was a lot more depressing. When I worked downtown, my coworkers would regularly explore new restaurants during lunch, have 1-on-1s over ice cream etc. The other benefit was that downtown had better public transit. Getting from one random place in the suburbs to another via public transit is a much harder problem to solve than getting people to a central area.
I wish we could solve zoning and permitting and just build our cities up.
> I wish we could solve zoning and permitting and just build our cities up.
Lest people think that building up necessarily means skyscrapers, it doesn't. You can build a six-story building without any of the extreme engineering or exotic materials that skyscrapers require. Paris, Barcelona, and Amsterdam all manage high levels of density where the average resident will be living in a building of approximately six stories or less.
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.
The exotic materials and construction required for a skyscraper are due to a need for massive strength:weight ratios, and are a separate consideration from sound insulation. A desire to use less material overall (and therefore need to support less weight) will naturally drive a skyscraper to have as little of this material as it can get away with, which means poor sound insulation is the default. Naturally, low buildings will also skimp on sound insulation because nothing's cheaper than nothing, but this is why you need regulation and building codes that take sound insulation into account.
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 <=5 or >=15.
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 Market just failing, as it usually does, to provide anything other than the cheapest least-common-denominator solution?
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.
Another thing that seems to be missing from many people's mental model is that building up doesn't mean you need to destroy green spaces. In fact building up gives you more ability to create green spaces between the buildings.
I don't get why people don't like skyscrapers. They're cool. I am from NYC, so maybe I'm used to it. My understanding is the major reason they aren't build as much outside of Manhattan is because the bedrock in Manhattan supports heavy structures.
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 problems, like how they have to pump their own water rather than relying on ordinary water towers, or how wind and earthquake risk has to be accounted for as the height increases.
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 low-density are another cost that's not priced in. It makes it really hard to find the equilibrium point if we aren't pricing everything in.
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
It's quite hard to turn modern office builds into housing. Recently-built offices have huge floors, so natural light can't penetrate into the interior. Those spaces are fine as meeting rooms, but won't suffice for living in.[1] It's possible to make apartments with no natural light, but most people don't want to live in those. If they're low in rent, maybe they'd be attractive enough. But then your rent/sqft number goes down, and so your valuation, and your building is in the red with the banks. "Just turn it to housing" isn't an easy answer.
There's still great demand for premium office space, but your average office building is going to suffer.[2]
But this is good. It means no new office buildings need to be built. The existing ownership and debt will simply be juggled and fought over, numbers on a spreadsheet. The buildings will still exist and be available for office needs at reduced costs (after debt takes a haircut). New urban construction can now focus solely on residential needs, and with housing unit shortages, this natural reallocation of construction effort (due to demand destruction) should be welcomed.
I'm with you - there'll be a long term re-allocation. It might take decades, though. It's a larger scale version of the problem of empty storefronts. Store owners would keep buildings empty than reify the financial cost of reducing rents. There's large numbers of empty stores on Broadway in NYC, of all places - perhaps the most famous street in the country!
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.
I don't get your point. If there's no demand for office space anymore, who will have offices in these buildings? If nobody has offices in them (or if rent is not enough to maintain the buildings), what will happen to them?
I'm sure there's plenty of demand for commercial space on a lower rent. Commercial space is much more than offices, but those things are priced so that only high-margin artificially high-density knowledge work can afford them.
Our modern cities are clearly not economically viable (proof of that is that people can't afford to live in them), so yeah, something will break sooner or later.
>
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."
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.
Well, rent/sqft is dropping rapidly, like it or not. The housing crisis felt across north america has never had easy answers. But we're seeing a possibility for incentives to come into alignment with increasing the supply of housing. Even if that means tearing down buildings -- because if you don't, you get squatters.
Older-but-otherwise viable office stock, though, is a decent candidate to turn into housing. In a perfect world:
* Lots of companies still using office space migrate to new office towers.
* Older office towers get turned into housing.
Will that get us there? I'm not sure. Of course, banks will still not be so happy, because a lot of this newer stock that would have rented at premium commercial rates is going to have to go a fair bit cheaper.
(The other thing is-- if some of the older office stock gets turned into housing, the demand for commercial should go up, too, because it's easier for your work force to live close to work... but unfortunately, all of these corrections are on a timescale of 5+ years).
The other major issue is that commercial space has much different plumbing requirements than residential. Commercial plumbing is mostly centralized with low flow pipes for sprinkler systems. That's not sufficient for residential space and it would take significant construction to add in that plumbing.
Some commercial space will have similar issues with air conditioning and power.
I'm often amazed when Big Brains trot out the "turn offices into residential!" without for a second wondering where people will shit.
I highly encourage people to read that NYT link, the diagrams are excellent. That said, the article also shows how you address the problem of no natural light: you punch a hole through the center of the building (and in New York City's case, this permits the developer to "move" that lost floorspace into newly-built units on top of the building). Far from a trivial solution, but also far from impossible.
That "solution" is literally impossible for most office buildings where the core is structural and contains most of the building machinery. For those it's cheaper to demolish and rebuild.
The article shows an example of a building where one structural column had to be moved in order to accommodate the hole, and where the hole itself is off-center in order to disturb as few structural elements as possible. Indeed, every building converted in this way will probably need its own bespoke solution (e.g. if the elevator shaft is dead-center, you might cut two smaller holes on either side), but even then it seems like it would be hard for it to be more expensive than starting over from scratch.
I'd need to be convinced the punch a hole is actually a good solution. I've stayed in lower-floor hotel rooms on a light well and they weren't great. (Of course, a lot of Manhattan hotel rooms aren't great from a natural light perspective--but I'd almost certainly have higher standards for something I was going to live in full-time.)
why is everyone dreaming of turning offices into 2 bedroom 2 bathroom family units? most of these buildings are in very dense, tourist heavy areas, usually with booming nightlives and social scenes
it's become a dirty word, but turning these buildings into SROs / low-cost rental units might bring back the artists and musicians that have been sorely missed from these areas, while providing people who don't have a credit history or first month + last month + security deposit a place to stay in a place that charges by the night instead of by the month
much easier to turn an office into a coliving space with communal bathrooms, dorm style accomodations, and large cafeteria kitchens anyway
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 further and further out to find affordable places to live. Eventually the jobs start to follow, leading to tax base collapse and urban decay. This leads to a death spiral of urban decay, crime, and population flight.
Then the city gets cheap and people start to move in again. Repeat cycle. Cities get cool -> people move in -> cities get expensive because you can't build -> people move out -> cities collapse.
There are places that seem able to avoid this cycle, such as Tokyo, but AFAIK that relies on a different kind of governance regime that takes zoning away from local bodies and enforces a uniform pro-density zoning code at the city or even larger scale. Basically you have to break the NIMBY cartel. It also involves very proactive transit policies that build out transit to match density.
Of course it could also be due in part to Japan's declining population, which makes it pretty hard to have real estate inflation.
The “NIMBY cartel” here is any and all real estate investors, who have turned both housing and office space in large cities into a speculative asset class from which they expect to receive returns far beyond sanity. I wouldn’t gamble on them being disrupted any time soon. California, where Democrats have the firmest lock on the levers of power, has some of the most regressive, distortionary laws in place to protect them.
> 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 industry has been shrinking for years. It's not the end of the world.
> 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...)
Sprawl is also a technology for balancing public order and civil rights.
I don’t think there’s any way to square the circle of cities being nice places for middle class families to live while also having a right to camp on the sidewalk and urinate on the train.
I still have to see any super dense city that is actually a good place for families with small children. This is for the reasons you mentioned but also for others like like lack of living space, nature, transportation for the purpose of travel/vacation, etc.
You're talking US zoning laws? We don't have those in the UK.
The bellwether we have for the health of the UK, or at least London, is train and tube usage. It has, apparently, returned to almost 100% of pre-COVID.
That's not to say that London's commercial properties are fully reoccupied, they're not, but London is perhaps doing slightly better than US cities in this regard.
Boston is still around half of pre-COVID transit use--though that's overlaid with some very disruptive long-deferred maintenance. Anecdotally, traffic seems worse than ever so I assume that a fair number of people switched to their cars and haven't come back to transit.
The problem with suburban office parks is that commuting to them is worse than downtown when you live in the wrong suburb - one on the other side of town from them.
Downtown is a central location that is equally bad to car-commute to for everyone. Suburbs make for okay car-commutes for some people, and utter hell for everyone else.
You can fix downtown commutes by building out good transit networks, but there's no real way to solve the suburb-to-suburb commute problem.
----
And no, 'Just move from your suburb to the one that has the office park' doesn't work. Moving costs 6% of realtor fees on <absolutely insane house prices> + a mountain of effort and stress and other money. All for a job that might lay you off/that you'll leave next year.
People are more worried about their downtowns for reasons like civic pride and concern for the other businesses there, but suburban office parks were in serious decline even before the pandemic. They’re just out of the way, so no one cares if they’re vacant.
> 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 (nominally), as long as the city itself doesn't lose its ability to generate income in real terms.
Office values are going down because 1) interest rates went up, 2) the demand for office space went down (no indication this was going to happen before the pandemic). And that's really it.
The majority of high paid workers live near cities. In most cities, there isn't just one nice suburb where all the workers live. The workers are spread out all over the metro (including - mainly - in the city itself), and downtown is the only convenient place.
You can't easily just open small offices in the suburbs because its unlikely the entire team is in that suburb. They're probably spread out across the city.
You either go to the office (in the city) or you don't (less demand for office space). Or you work at a boutique company where everyone lives in some suburb randomly (outlier).
Karen From The Suburb has always wanted everyone in the company to commute to an office park in her suburb so its convenient for her. It's not going to happen now unless Karen From The Suburb becomes CEO.
We'll either RTO to offices in the city, or we'll keep working from home.
The future isn't more office parks in Calabasas and Marin and East Hampton.
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.
I didn't mean to imply Cambridge was a suburb. (Hence Boston/Cambridge or really Boston/Cambridge/Somerville.) Cambridge also didn't have significant technology companies--as opposed to universities--in the late 90s.
It's simply an attempt to establish the baseline to the speaker's liking. For instance, someone who doesn't like skydiving: "why would you jump out of a perfectly good airplane?"
Let's start with the fact that there are no "perfectly good" airplanes, then we can debate the wisdom of free falling from 3Km.
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/when these large commercial landlords do eventually get bailed out, I hope any assistance is conditional on converting buildings to productive uses like residential.
I think the reason they preferred the vacancies is that the value of the property is related to the rent price, so if they lowered the rent they’d have to lower the book value of the asset as well.
I've heard that theory but it still doesn't quite make sense to me.
Investors know that book values are usually stale. They're rarely used as a primary justification for valuation except in industries where mark-to-market is common like financial institutions.
Real estate investors tend to focus on Net Operating Income, which a vacant property won't generate, and Net Asset Values, which are based on market values. Sophisticated investors and lenders aren't going to be fooled into investing in it based on some historical or hypothetical value. Cash flow is important.
If rental properties really were sitting vacant because managers were hoping to preserve book value through an accounting gimmick, I would think property manager that focused on actual cash generation yield would drive them out of business.
It’s not the investor but about the loan. Commercial loans IIRC tie default rates to the last rent charged.
So long as the payment can be made at all, it doesn’t seem like people look that hard if the space is vacant or not. Usually only the ground floor is retail.
* All loans are priced based on the paper rental price, among other things. Pretty much no one buys commercial property with cash, so if the rent is lower the next purchaser won't be able to get as big of a loan, and the original landowner will be underwater.
* Posted rents are sticky, in that they are the basis of the negotiation for the next round of rents, and especially so for commercial real estate where leases are multiple years long and landlords often throw in renovation for leasees. Banks would prefer a space be empty rather than lower rent and then you have to negotiate from a lower base, and getting another tenant would mean having to rip out everything you put in for the current tenant at your own cost.
You see similar issues in multifamily where landlords would rather offer you "X free weeks" instead of lowering the actual rent by an equivalent amount.
The rental value of the property determines the margin that creditors will extend to you.
If your property value dropped (with last paid rent being the proxy for this), you'd be liable to be margin called. If you're fully vested on margin in something illiquid like real estate, then it very well might be better to have a few vacant properties than be forced to liquidate to cover your margin balance.
Obviously though this has the makings of a real estate bomb, as a few forced liquidations could set off a cascade of value collapses.
>I've heard that theory but it still doesn't quite make sense to me.
At a high level commercial real estate valuation cares about the cash flows for the entire building (usually over 10 years) and a discount rate to get to a number on what the building is worth. When we see empty space, we think it's not making money, but all landlords assume that a space will be empty at some point and for some amount of time, so that's already baked into those cashflows.
Without getting into the specifics, you'll generally push out your assumptions on leasing that empty space rather than drop your price on cost of the space. Pushing out assumptions typically means taking a slight hit because the cashflows you were already expecting are just hitting the books a little later. Dropping the cost of the space generally decreases market value, so that makes all of the space in your building cheaper which has a much more significant impact on the cash flow for the entire building, rather than just one space.
The other significant factor is that landlords typically have significant upfront costs in base building improvements and free rent credits that they give to tenants. This means that there's a certain amount of time, generally a few years, where the landlord has paid out more money to the tenant than they've received. Landlords need to be confident that the tenant is going to be paying rent beyond that break even point, or else they've lost money in addition to losing out the ability to rent it to another tenant and any legal fees associated with evicting a tenant.
Between how valuations are structured and needing to hit that breakeven point with a new tenant, there are relatively few incentives for landlords to just "lease the space".
Right, and so lower collateral for other loans. This is apparently rampant in NYC. It's wild that incentives exist to make vacancy profitable. But there's a LOT of vacant storefronts and apparently vacant apartments (though it's hard to get this data..)
IIRC a big issue is also the rise of REITs and other large landlords, which unlike small time landlords have a large enough portfolio to use the losses on a vacant property to deduct taxes.
Deducting losses doesn't make losses profitable, it just eases the sting of the loss a little bit.
If you lose $100, and you get to deduct that $100 loss, then that saves you the taxes on $100, but unless the marginal tax rate is somehow greater than 100% then you have still lost money.
I think the question is around scale and distribution: if I own one office building, I’m going to make sure it’s as close to 100% booked as possible or I’m out of business. If I own a hundred office buildings in different cities, I can afford to eat a fair number of vacant spaces waiting for a high-revenue tenant and still make a lot of money - and if those vacancies aren’t randomly distributed that could mean that one downtown can be hit a lot harder than my entire portfolio.
Where I live this has also shown up in the retail/office split: some of the loudest voices calling for the end of telework are the same real estate moguls who jacked the ground level retail rents up and are now surprised that most of the good restaurants out, and most people don’t go across town for chains. They could afford that when all of the offices were booked but now most office workers are asking why they should be taking time away from work to buy mediocre $16 salads.
> It's wild that incentives exist to make vacancy profitable.
As usual with financial instruments, it's probably the result of a model being applied and the limits of the model institute some perverse incentive that is not rational.
In this case seems that the convoluted way of tying up property value to last rental price, and using that proxy to extend margin for loans is where this model breaks down.
With a tighter money policy coming from the FED in an attempt to control inflation, the availability of commercial building loans is negligible. The market will self correct. Hopefully it won't take a bunch of people with it.
At one point there were suddenly dozens of new bank branches a year because that was the only kind of business that could afford the rent. So the banks ended up propping up the values of their loans.
There were subway ads touting how convenient Chase was with 3k locations in Manhattan alone.
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 waiting for a more lucrative tenant to come along.
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.
I'm surprised there haven't been any Georgist responses. I think the biggest reason this happens is that in dense urban areas most of these landlords are really speculating on land value. You'd like to have tenants but most of the profits you're going to derive from owning the property are from appreciation of the land value. It's not always worth it to sign commercial tenants to a long term lease and take on the costs of those tenants vs just holding the vacant building until you're ready to sell. I think the best method to fix these issues is to tax the value of land at close to 100%. This forces the landlords to put the land to productive use or sell it to someone else who will.
> and apparently (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents.
As I understand it (but I'm not sure how applicable this is to any specific place), landlords can write down a loss set by either the last rent they received or the market rate in the neighborhood. If those losses are offset by gains elsewhere, they can zero their tax bill -- which, for landlords with diversified holdings, may be very large.
No, you can deduct actual expenses, or uncollectible rent. This does not include theoretical rents that you would have received had the property been rented. No part of your deductible expenses is contingent on the market rent, or the last rent you charged.
> (for a reason I don't fully understand) landlords felt it better to have spaces remain vacant than to lower rents.
Commercial tenants tend to have very long term leases, order of 10+ years. So attracting a tenant through lower rents has a dramatic effect on the long-term cashflow of a building.
Imagine the salary of your next job determined your salary for the rest of your working life. Would you prefer to stay unemployed or accept a below-market salary?
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.
> I hope any assistance is conditional on converting buildings to productive uses like residential.
Do not _hope_. Write to your elected representatives, en masse, and demand they do this in any legislation written about the matter, or you will remove them from office.
But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own.
As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?
Yes, and my understanding is that SVB's assets, which are still productive over the long term, were sold on to pay for this "bailout." So the narrative that there was a government bailout is not really true here. The real concern I've heard is that FDIC insurance paid out to a lot of depositors who had more than the statutory limit, but what's left out is that FDIC actually sold on SVB's assets to pay those depositors. It seems like they're taking an interpretation that the statutory limit only applies to banks which don't have any assets that can be traded on.
SVB’s bailout is estimated to have cost the FDIC 20B. The Fed also set up new lending programs to support the banks, which was essentially free* money.
I don’t really see how that’s relevant. Paying into the FDIC DIF is a legal requirement of the banks. It’s basically a tax. Somehow bankers have convinced everyone that they have impunity to mess up the financial system just because they pay a special tax.
And if the FDIC is really going to offer unlimited depositor protection, they’re going to need a lot more than the 100-200B in the DIF.
The SVB investors which were many millionaires, did lose 100% of their investment.
The depositors, regardless of wealth, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk. How is it a bailout to let them keep their money?
The depositors were bailed out. Also, I would say the banking sector as a whole was bailed out. Providing unlimited insurance is to SVB’s depositors allowed other banks to remain solvent, as did the Fed’s new lending programs.
> I would say the banking sector as a whole was bailed out
I disagree with that characterization.
The FDIC refunds depositors using money (assessments) they collect from member banks. So in essence, unless the government does something special to inject funds directly into the FDIC, the remaining FDIC member banks would likely see their assessment rates go up to cover the costs of these bank failures.
> "any losses to the FDIC’s Deposit Insurance Fund (DIF) as a result of uninsured
deposit insurance coverage will be repaid by a special assessment on banks as required by law."
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.
It's indirect. Softbank gave money to startups. Startups put the money in SVB. If the startups hadn't been made whole then softbank would have seen many of it's investments fold.
Does asking this advance the discussion, or is it a passive-aggressive way to continue signalling you believe “seized the bank and sold it, keeping deposits whole” means “SoftBank bailout”?
If you really think about it, it was a bailout of the American people. And that's why it was good and an example of socialist praxis.
After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour.
SVB's depositors were primarily businesses with more than $250,000 in an account. Over 90% of depositors(google for exact percenatge) had more than 250,000 in the account.
So who was the bailout for?
Not the average guy on the street...
> So who was the bailout for? Not the average guy on the street...
The "bailout" (badly named) was for the average people working at these companies. Their families that wouldn't have gotten a paycheck. The grocery stores they couldn't have bought from.
Payroll accounts should be 100% FDIC insured the same why it works in many other countries.
"Payroll accounts should be 100% FDIC insured the same why it works in many other countries."
Perhaps, but they are not so it is a bailout.
"The "bailout" (badly named) was for the average people working at these companies."
That jumps to a conclusion and fails to recognize the business owes a debt required to be paid by law to the employee for the work they have performed in the previous weeks.
I don't want to see banks fail like any of you folks, but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance. Business management is just as culpable as the banking staff in maximizing profit and maintaining proper liquidity and insuring working capital is secure.
> but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance.
Yes, and this is why $20 BB from SVB investors, hit $0. The bank management and investors were did have to live up to that responsibility.
Should they have to do more? Yes. There should be compensation clawbacks from the C-suite over the last 5 years or something. Lets see where this goes.
That’s simplistic thinking. The majority of those businesses would not have been able to pay staff and there would have been many redundant “average guys on the street”.
Perhaps, but perhaps the simplistic thinking is that the bailout changes anything. Are businesses which are trying to meet payroll now running a buffer in multiple banks? Are they securing the future of their employees by making sure they can meet payroll in an emergency? Probably not and as a result they didn't learn anything from the experience.
The truth is, this is the tip of the iceberg. Don't be sailing on the Titanic since you have been warned.
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 the other way. This is pretty much the definition of moral hazard: why diversify banking now?
(Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty).
My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.
> Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank.
Call me silly but opening a bank account with the 17th largest bank in the US is not risky or reckless behavior in my book. It's nothing like Wall Street in 2008. They're bank accounts ffs. People use them to run businesses to earn their money. They don't become rich off bank deposits. At best SVB might have given some discounts on other products for keeping large balances. If they did, they should also have advised splitting the deposits into $250k accounts or done it automatically.
> why diversify banking now?
Why do it at all? Is any value produced by doing that? If I have $25m in 100 accounts at one bank, it's unconditionally insured. But if I put it all in one account at that same bank, it's not. It's the same amount of money, and the same level of risk as I'm the only owner of all that money. How is that logical?
Public sentiment has colored this situation differently because SVB account holders are largely wealthy individuals and companies.
Bank accounts are a utility. They should just work.
I stand corrected. Even so, what's the point of all this money splitting? Increase the FDIC premiums for larger account balances going forward. Apply those increased premiums retroactively to all the banks that failed recently, if feasible. Let account holders get on with more useful work.
> Even so, what's the point of all this money splitting?
It eliminates the most proximal cause to the SVB collapse: strongly correlated behavior by large account holders. If banks have many account holders that are diverse, it's hard enough to get a panic that causes illiquidity.
The duration risk would have still been an issue, but a far smaller issue without the need for panicked liquidation. (Even with a healthier balance sheet, most banks would struggle to endure a bank run like SVB).
> Let account holders get on with more useful work.
If you have a massive amount of money, there's a little bit more work to do than dumping it in a random bank.
Ages ago, when my firm had a $15M bank balance, it was close to trivial to work with a vendor to spread the balance among 20 banks. We were still not fully insured, but we had significant insurance and limited exposure to any individual bank failing. 20x the risk of failure, but 1/30th the cost should one happen. We could have also bought some treasuries directly.
> Apply those increased premiums retroactively to all the banks that failed recently, if feasible.
How do you charge a bank that failed and doesn't have the money to pay its depositors money?
I'm in favor of a small increase in the insurance coverage. Maybe $500k or $750k. But I don't think it's good to make bank accounts equivalent in safety to treasuries up to any amount but more liquid.
> How do you charge a bank that failed and doesn't have the money to pay its depositors money?
At least in the most recent cases, they have the assets but not the liquid cash.
> it was close to trivial to work with a vendor to spread the balance among 20 banks
Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.
> At least in the most recent cases, they have the assets but not the liquid cash.
Yes, but those assets need to be sold for less money to pay current account holders.
Or if you issue a loan based on receiving the value of the assets in a few years, you'll need to account for time value of money, which has the same effect.
> Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.
Many banks do. Comerica set us up with this product, but we had to ask-- because otherwise they'd rather have had all of our money.
(And even though Comerica got equivalent amounts incoming, for various reasons brokered deposits are less desirable to a bank than direct accountholder deposits).
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.
That’s entirely absurd. This is essentially saying there should be a special, perpetual class of government-backed securities with a guaranteed return in excess of all other market performance or conditions. If this was true, everyone would just invest in the special government stocks where you get 10% ROI forever and almost nothing in anything else. At that point, you’d have insane inflation or be better off with a state-run command economy.
It's not absurd at all when you consider that T-Bonds are the foundation of our banking system. Plus, there's no fundamental reason we price bonds the way we do.
The risk of this exact scenario playing out across the banking sector is likely the reason why the Fed took so long to raise rates (and the drastic, reversal of course when they tried in 2018).
> The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused.
No. You don't just get to get the government to subsidize all your duration risk. You need to properly run a bank. You can buy shorter duration bonds in order to mitigate the risk from interest rate changes.
I don't think they will be salvaged actually. I think we'll have a combination of less city friendly states not assisting at all leading to companies wanting to force office work in some "spilled milk" style fallacy.
There's less than zero chance any of these downtowns will be covered to residential. Offices and homes have very different needs, you basically can't convert.
economically, printing more money isn't inherently wrong. Money was destroyed by default. Printing money to counterbalance this ... works. In principle, this is why communist regimes can get away with ordering organizations to do X, for Y.
The problem is that if you do this every time, you are effectively entrenching the current power structures of society. This isn't a bad thing if those power structures are good - or necessary. But ... it's obvious that repeatedly doing this benefits a specific class of individuals (capital holders) by capping their downside. Capping the downside of existing capital holders also caps the upside of non-capital holders by creating an uneven playing field and eliminating opportunities available to those with "clean" balance sheets.
A chunk of the money created was by lenders, to charge borrowers for the risk of default. If you print more money then you remove the incentive to assess risk. I don't know if this is good or bad, but economics says risk assessment is how capital gets allocated to "good things". Here "good things" I guess means less wasted space in a city center.
The time bomb began ticking around the time people started getting broadband connections and work-from-home/video-calling became viable (so around 2007). The surprising thing is the cultural shift took 15 years to play out, and needed an actual global pandemic to really push it through even then, and even then there is a massive effort to put the genie back in the bottle. Turns out office buildings are just another form of technology that has been superseded by something that just works better, deal with it banks.
Does anyone have any recommended background reading on how bubbles and "time bombs" work? Why don't these things behave according to normal price supply demand curves where the price would slowly come back down to earth over time. I've seen this repeat time and time again across certain assets, and always being curious about the underlying mechanisms.
The problem with bubbles is you cannot know there was one until it bursts. Then and only then can you see the effects of it. Until then it is merely conjecture based upon delayed information.
Here are some searches I have benefited from reading.
Pre-pandemic I started commuting by train and even though it was nearly the same time spent, my attitude and outlook was worlds better than when I was driving in heavy traffic every day.
There are multiple workable solutions, and unfortunately most US cities aren't heavily invested in any of them. My city has very limited rail lines and it was only happenstance that my work was close enough to a stop for it to be a reasonable way to get to the office. Literal millions of other people in the metro area don't have that option.
Accelerationist 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.
This is probably the tip of the iceberg of the bad businesses/investments that have been propped up by zero percent interest rates for the past decade.
When the tide recedes and all those investments pop, that should cause a major recession in the US and rest of the world.
A positive feedback loop will also exist, though, where due to the recession and belt-tightening, companies will defect on RTO plans and seek to get out of leases and office spaces, further intensifying the commercial real estate crash.
The Fed has definitely slammed on the brakes and will continue to do so until they create a recession and push unemployment significantly higher. We're still in a situation where nothing fundamental has changed about the US economy and if rates were dropped then inflation would surge again. And the only way that keeping rates higher doesn't break the US economy is if you believe that a decade of ZIRP didn't lead to a lot of bad investments that are funded by kick-the-can-down-the-road cheap money refinancing.
I 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 shipped to him and he then ships the next stage product to someone else? With 3D printers this is even crazier right? For technologists, the only job that I can see requiring physical proximity is hardware repair and other helpdesk style roles.
I do acknowledge that humans are social animals and there are benefits to face to face interactions, but these come at enormous costs. These costs aren't merely financial as so many people emphasize, but material. The material cost of cities on our planet is quite high. The amount of concrete, metal, glass, and other materials is quite large. With decentralization we would have an increased use of roads for logistical concerns, and we'd have an increased sprawl issue, but there'd be so much less traffic overall I think we'd have a net win on air quality. The next issue to tackle would be expressly limiting sprawl, and I have no idea how that'd be done.
EDIT: Comments have been that this would decrease production. this is entirely accurate. Most items today aren't made to last and we have become accustomed to hyperconsumption of low quality stuff. No doubt. Scale has alternatively raised the standard of living the poorest among us by insane amounts. There is severe good and severe bad that have accompanied this remarkable economic boom of the last 100 years. The thought that I really have regarding this is that Amazon has made it possible to distribute insane amounts of stuff to a distributed buying public and there must be a way to manufacture in the same way. I am not a logistics person, and I could be entirely wrong (I probably am), but it's a dream and not a proposal.
Economies of scale are a thing to reckon with. Right now in a factory that CNC operator ideally ships the part to the next workstation metres away without needing extensive packing for safe handling and it arrives in minutes. Or it goes to a shelving stack that buffers the flow of parts within the factory but still requires relatively little protective packaging. Freighting everything between micro-companies works in the other direction: it's more likely to be done for low-volume and/or very specialised parts.
> 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 never have to leave our homes for convenience's sake?
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.
You lost me at shipping CNC machines. I can't wrap my head around that factory job being remote. Personally, I feel these jobs need to go away. Machines need to take them over and we need a new, subsidized generation to figure out what to do next. Global economies need to be a thing of the past.
The machines are expensive. You want the machines producing as much as they can to balance out their costs. Workers don't like working 24/7, so they'll stop working after a few hours (this is good!).
If each worker has their own machine, that means the machine probably ceases to be producing when the worker is done. Coupled with potentially longer startup processes (many machines are way easier to keep running than do a cold start) it means these machines sit idle for most of their existence. This is sub-optimal.
If you centralize the machines, then you can trade off workers and keep the machines running. You then also potentially don't have to worry about startup processes eating into productive time as often. This is than a major efficiency boost.
On top of that, many times several different jobs might be related to the operation of that machine. You might need someone who specializes on cleaning the machines, you might have people specializing on the inspection on the machines, you might have people specializing on the day to day operations of the machines. Having that specialization can be a net benefit overall.
Think about repair turn-around times. So you've got a CNC operator way off in the middle of nowhere, super distributed. He knows the basics on how to use the machine, but maybe not a lot more. Then it throws a fault, and he doesn't know how to repair it or doesn't have the equipment and parts. Now he's going to call up the head office, who is going to dispatch a repair person from somewhere (maybe close? maybe far?) to come out to some far away remote location to repair it. Meanwhile, for larger operations they might have some techs on-site who can do repairs within just a few minutes and get the machine functional sooner. You can co-locate a smaller cache of spare parts for a larger pool of machines, because multiple failures is probably pretty rare. All that downtime avoided turns into productivity gains as the machine gets to functional levels faster and the CNC tech gets back to work faster.
> You want the machines producing as much as they can to balance out their costs
And you may have a single operator who's responsible for keeping multiple machines going. Loading raw material, attending to alarms, etc.
To add to what you said, there's a concept known as "lights-out manufacturing" wherein the machines are continuously reloaded by robots/automation with raw materials (and if needed there's other automation to offload completed parts) so they can continue making parts even after everyone's gone home for the day.
To put this in perspective, retail has been in free-fall for decades in the United States, yet as of 2018 the US had something like 23 sq ft of retail per capita when countries like Japan, UK, Germany, France etc. average around 4.
It takes eons to clear out nonperforming real estate inventory. Just ask the Rust Belt.
But what is the retail sq ft per capita in urban cores? In the vast endless car-required suburbia that is American, that big box stores dominate, and pull up the average isn't surprising. The easiest way to visualize an acre is a Best Buy, after all. But how about if you only look at stores in Manhattan? What's the per capita SQ ft there?
According to what I can find on the Internet, there is 55M retail square feet in Manhattan for its 1.6M residents, so about 34 square feet per person.
Keep in mind that this figure doesn’t account for tourists, commuters, etc; but also keep in mind that over the last decade several large million+ square foot malls have opened in Manhattan itself (Hudson Yards, the Moniyhan station hall, the future Penn Station renovations, the Fulton transit center, the World Trade Center Oculus, etc.) The Hudson Yards one just lost its anchor tenant.
Read about the Hilton . There was another hotel that closed, and a recently an office building sold for something like 1/3 of what it was bought for before pandemic ($75m vs 240m or something like that).
The question is whether those were unusually that's or the start, and I do not have the data to know...
For those cheering on the demise of office landlords, please keep in mind the astonishing number of public and private pension plans invested in these assets. The impact will not be limited to just the landlords and will be nothing short of catastrophic to downtowns (which we’ve just spent the last 30 years trying to rejuvenate after being hollowed out by white flight to the suburbs), the character of our cities, our municipal budgets, and our economy.
It is an excellent idea to step back and look at the bigger picture.
I put it to you that while you have taken one step back, you will get a clearer view if you take 10 paces back.
We are in the midst of catastrophic accelerating climate change. We are heading for a world that is 3-4º C warmer by the end of the 21st century, when children born today are getting to old age. That means the certain collapse of the West Antarctic Ice Sheet and worldwide sea level rise of 5-6 metres in those kids' lifetimes.
Now look at how much of these expensive cities and their expensive offices are build under 5-6m of current high tide level. All those buildings will be lost to the sea before they are paid off. All those investors will lose their money. All cities and city districts wholly located within 5-6m of mean sea level will disappear completely.
Just considering sea level rise, whole nation states will disappear. Whole economic sectors will collapse.
But it's not just about sea level rise. With 3-4º of warming, much of the tropics becomes uninhabitable. Most glaciers disappear; currently fertile countries lose their year-round water supply.
The Himalays are called the world's 3rd pole. 5 or 6 major rivers originating in the glaciers of the Himalayas provide about one third of all humanity with their fresh water.
All those countries become desert, even if only seasonal desert. All agriculture fails.
If you view the world in terms of money -- not a good strong robust worldview at all, but a common one -- then there are far far bigger financial threats looming than empty offices and bankrupt financial institutions that invested in them.
I don’t disagree with you at all, which is why I believe dense, vibrant cities are the future rather than endless suburban sprawl so that people can have their 1/4 acre with backyard and everyone has their own in-home office. I view WFH as a setback to the climate argument rather than a benefit.
We should be tackling commutes by building denser cities with mass transit, not by having everyone with more space in the burbs.
Another point: it takes a lot more to heat and cool thousands of individual houses to human comfort rather than setting those thermostats back throughout the day and only managing the HVAC for densely packed offices.
The problem is that people do not want to live in densely packed high rise buildings with noisy neighbors, lots of crime and no nature for their kids to play in when the alternative is a nice little house in the suburbs or in a small rural town.
HVAC is a completely solved problem by just putting solar on roofs, especially for single family homes.
I lived in such a city until January, in a dense medium-rise apartment block, with 3 forms of public transport available to me within walking distance. It had no heating system of any form, heated by hot water from the mains supply, provided by waste heat from a power station 40km away.
I worked from home from it from early 2020 for 3 years.
I'd prefer, for that purpose, that it were considerably larger and had a dedicated office space, or even a co-working space in every building or something like that.
I have never, even driven a car to work routinely in my life. I got my driver's licence at 37 and have not owned a car as a licence holder.
But TBH I personally did prefer going into an office. Almost everyone I know prefers not to, though.
So, you're right, but the two designs are not mutually exclusive, which you seem to be implying.
We were having a nice conversation about the viability of office space as an investment in a world of broadband internet and remote work on information related fields, but thank you for shoehorning your pet issue into it where it doesn't fit. In the sage words of the Dude, "what the fuck has anything got to do with Vietnam!"
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 personally don't want to forcibly stagnate development to protect what amounts to unrealized losses becoming realized. The numbers are big, and so the impact is big, but fundamentally all this is is nonviable business models failing. If your pension relies on office buildings being full, if your city based it's investment plan on information workers requiring proximity to something physical, it was not viable, and there's nothing anyone can do to change that. I won't be forced into a life I don't want to save a city budget or someone's pension plan. Am I cheering? Sure, a little, but mostly I'm just looking at the situation pragmatically and realistically and seeing what's in front of me. If your retirement necessitates me paying thousands in rent to overlook deadlocked traffic, commuting for an hour or corporations paying for floor space as what amounts to a frivolous amenity, you backed the wrong horse and will take a financial hit, whether I cheer or not won't change that fact one iota.
> 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 buildings are not the first thing that come to mind.
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.
I think the solution is for those funds to divest in those investments, not for society to change course in order to keep a certain investment vehicle.
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.
My company had a sublease for 2 years; but Google says the average is 8 years for commercial leases. 2020+8 = 2028; which could align with the ~30% increases in vacancy rates; and climbing in 2023.
