Posted on 04/05/2023 5:51:32 AM PDT by EBH
After the banking crisis, could the next domino be all those empty office buildings in your downtown? Investors and economists are sounding the alarm about the commercial real estate market, seeing trouble ahead with refinancing. This sector has been hit hard for years now with the shift to remote work bringing about rising vacancy rates and falling property values. For her part, Lisa Shalett, the chief investment officer for Morgan Stanley Wealth Management, and strategists, sees a “huge hurdle” ahead.
Alarmingly, Shalett notes that regional banks accounted for 70% to 80% of all new loan originations in the past cycle, with all eyes on the sector after the historic implosions of Silicon Valley Bank and Signature Bank last month. She said office properties were already facing “secular headwinds” from remote work, and now sees a wipeout with vacancy rates close to a 20-year high: “MS & Co. analysts forecast a peak-to-trough CRE price decline of as much as 40%, worse than in the Great Financial Crisis.”
As Fortune has previously reported, tighter lending standards for the commercial real estate market are now likely. In fact, stricter lending standards were already in place with the Federal Reserve raising interest rates in its attempt to lower inflation, and the banking crisis will only exacerbate the existing lack of liquidity. That in turn, will increase the risk of defaults, distress, and delinquencies as the industry is largely built on debt, experts previously told Fortune.
And what of the wider impact on the economy? While Shalett sees a soft landing still possible, she says the odds of that happening are decreasing in light of the likelihood of tighter lending standards.
(Excerpt) Read more at msn.com ...
So if this continues to be the face of the new world of work, how would one capitalize on it?
Technology, specifically business tech for the home office.
Services, such as day-care/child care outside the home.
Delivery services?
In-home tech support?
What does the pivot look like?
Government subsidized housing for the homeless? If only there were 2.6 billion available to do it.
So I will modify my prediction to " the large cities will erode faster and collapse after the federal debt gets so large that it explodes. Then the people who caused this and capitalized on it will look around for somebody else to blame. And the refugees pouring out of the cities will make the Mexican border look orderly."
The “Victory Gardens” of yesteryear will become the “Survival Gardens” of tomorrow........................
This was obvious to anyone paying attention after they shut the economy down.
Nearly every company in existence, that would never ever ever considered work from home was forced to it and many found out, they can do it reasonably... so the bean counters wouldn’t take long to ask why are we paying $100 or more a square foot in some markets for commercial real estate?
When their commercial leases expire, many will reduce their footprints significantly... and it’s going to be ugly.
The new technologies have made large central office locations unnecessary and often obsolete. Urban America is barbaric and unlivable. Decent, rational people do not wish to work, reside or send children to public schools in these places.
I’m usually an optimist by nature.
But I see absolutely no reason for any optimism now.
Our political system has failed. Our debt has exploded. We’re moving to digital currency. The global political balance has been trashed. AI is here.
This is all bad. Very bad.
Science fiction writer William Gibson is two-thirds through a trilogy called the “Jackpot Trilogy”. The name is sarcastic because it posits human civilization hitting the “jackpot” of every imaginable disaster all at once early in the 21st century. Debt, war, pandemic, financial collapse, technology advances. All bad. All at once. The jackpot collapses civilization and causes enormous depopulation.
I think we’re there.
But for most folks, it's also their social life.
People need people.
Some corporate space will be modified for meeting rooms, hoteling, conference rooms etc. Space that can be turned over and LED signage that will change when the occupant for that day changes.
Software like microsoft teams will continue to take advantage of video conferences and separate project management software.
I think the hospitality industry, coffee shops etc can provide more private settings for hour meetings that can be rented out for small meetings.
Most office properties as per the article has always been referred to as “class a” in the business. It was most expensive, with lower returns, but was the most solid, stable type of property to own. Gold standard for long investors who want less headaches.
Now it’s like a owning doom. I have no idea what will happen to all of this property if everyone just stops using it.
If we don't get a change in administration in 2024 I will definitely buy a year of survival food and water filtration equipment as well as solar powered battery systems for the home.
Those are all good ideas and agree with you - but you won’t fill skyscrapers and office capuses with meeting rooms and software clatches.
Corporate spaces will have to be changed to apartments.
Lots of creepy pictures online of nice old public buildings in cities like Detroit or Baltimore. Train stations, libraries, churches, shopping malls. All sorts of places, abandoned for decades.
They are going to bail out those invested in commercial real estate with government housing grants to convert office space into low income housing.
I've been saying that for awhile. There is a whole generation living in Mom's basement because real estate costs skyrocketed and salaries did not keep pace. Buying a house? Renting an apartment? Plenty of people just can't do that with their current income, and they may not have reasonable hope of a higher income any time soon.
I would love to see some corporate real estate transition over to cheap housing for people with jobs. I have been told that financially this is impossible and that an office park that becomes housing is very likely to charge $3-4000 a month for each apartment rental. I'm not sure that's true. All I really know is that this country needs access to cheap housing for people who are not "parasites" but who are trying to live productive lives.
“As soon as we (and corporate America) realized that office workers were MORE productive when working from home” - Thanks for the good laugh! BS! You must not be in management. On balance productivity is sinking like a stone. Many of these companies were just operating on the fumes of what was working before. As time goes on, the truth of WFH will be revealed.
Get ready for big reductions in pay too. Why pay big urban wages when you can just hire someone in Dubuque, Iowa, or even lower in India, etc.
How about construction companies that specialize in converting office space to apartments.
There is a major apartment shortage in the USA. Especially in some of our major cities where rent for a two bedroom apartment exceed $3000/month. This also would benefit the city because it brings people back into the city to live.
What you guys are talking about is re-purposing. It’s what needs to happen, and actually has been happening. One example is an old Circuit City near me was bought for a song thrn turned into a giant sushi reataurant... and their making a killing.
That however is unconventional can only be done to a point. Many or most commercial sites - everything from the structure/systems to the locale - are not organic to commercial re-purposing or residential use.
Another place near me - massive, brand new office complex built by Gartner Group just before COVID. Beautiful date palms line the roads, fountains etc. Just oppulant and massive.
Now it all sits empty. Colassal disaster for everyone... Gartner, the builders, money guys, surrounding supporting businesses, town coffers. Everyone feels it.
Repurposing may help - but only to point and after a lots of hell.
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