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108 sats \ 15 replies \ @Undisciplined OP 7 May \ parent \ on: Get Ready for Weaker Growth and Higher Inflation. The Consensus Was Wrong. econ

It is very well designed.

That's for sure. The Covid bailouts were the largest wealth transfer to the rich in human history and basically no one even noticed.

The looming crash in commercial real estate is going to be another spectacular transfer to the rich.

21 sats \ 14 replies \ @elvismercury 7 May

Unpack the thing about real estate some more.

101 sats \ 12 replies \ @Undisciplined OP 7 May freebie

There are people more tapped into this than me, but I’ll give it a shot.

There’s a wave of commercial real estate leases coming up that are not going to be renewed and there’s no prospect of most of the owners of those properties replacing the tenants.

That means they have no ability to afford to pay back the loans that they used to purchase those properties, which means this will spread through the banking system.

Banks and governments are starting to recall their remote workers, under the guise of productivity concerns. Many of us, however, think this is only happening to prop up the floundering commercial real estate sector. That’s not going to be nearly enough though.

I’m speculating that the government is going to make sure the rich owners of these properties, as well as the banks, don’t have to eat those losses. Obviously that means the rest of us will be eating them.

cc: @Signal312

69 sats \ 10 replies \ @xz 8 May

Read something along the lines of much of the coming defaults in commercial property will be repurposed (after ownership changes hands) and will be used to offer 'affordable city living' where there is newly pent-up demand. I don't think it was specific to US cities, but elsewhere there's been strategic partnerships between banks and charities doing this elsewhere, similar to the likes of Blackrock scooping up property from distressed mortgagees. Of course, just conjecture that any of this is premeditated.

69 sats \ 2 replies \ @elvismercury 8 May

I've heard that for infrastructural reasons -- e.g., getting plumbing, electricity, etc., to standards / amounts sufficient to the task -- the "re-purposing" is way trickier than it seems at first. Have no real expertise on the topic, though.

101 sats \ 1 reply \ @Undisciplined OP 8 May

This is what @siggy47 and @grayruby have also said. They both worked in commercial real estate management.

170 sats \ 0 replies \ @grayruby 8 May

Indirectly. All our biggest customers were commercial property managers so I understand the business better than most but I don't want to purport to be an expert.

The sense I have gotten from the people I know who know this stuff is taking an old shopping mall and demolishing it and building new residential on the site is much easier than repurposing a 30 story office tower in the city. To elvis' point the plumbing, hvac and electrical on each floor would need to be changed to accommodate individual units. You have fire/sprinkler systems that would need to be changed as well.

Anything is possible but does the cost/challenges/time required make it feasible is another question. I think we need more pain in commercial real estate and more time for this to be the route developers go.

My guess is these buildings need to switch hands a couple times before owners decide to go the redevelopment route. Need a couple iterations of new owners giving it "the old college try".

But like with anything humans will figure out better, more efficient, more cost effective ways to redevelop over time so I do think we will see some of this occur over the coming decades, especially if AI changes the job landscape as much as many people think it will. Between remote work and AI, we may be past the peak for commercial offices in large cities.

0 sats \ 6 replies \ @Undisciplined OP 8 May

I think that's the logical direction to go, but my understanding is that converting commercial real estate to residential is very costly.

89 sats \ 5 replies \ @siggy47 8 May

This is very true. I am weighing the costs/benefits right now regarding an old (1890) bank building in a remote suburb. It's got the charm residential shoppers would love, but the costs to convert would price the units out of the market. On a much larger, more important scale, the situation is worse. I had the opportunity during my career to spend time in offices in the Empire State Building, The Chrysler Building, etc. Even in the late 90s the spaces were small, poorly lit, and lacking the ability to support high speed internet, etc. Now, it must be 10 times worse. There was always plenty of space available even then, because the costs to modernize were too high. Attempting to convert these classic buildings to residential would be financially impossible.

54 sats \ 4 replies \ @Undisciplined OP 8 May

What if those older buildings were to remain commercial?

Are there enough commercial buildings that could be renovated to residential economically to support the ones that can't be?

Would it be easier to renovate them into hotels?

89 sats \ 3 replies \ @siggy47 8 May freebie

Regarding the 1890 building, we are keeping it commercial. Retail on the ground floor, walk up offices in the second floor, and a radio station on the third floor. Regarding the big office buildings, I don't know. Plumbing would be a huge issue. Think of all the bathrooms. Also, the walls are plaster, which makes electrical improvements a nightmare.