‘Zombie Offices’ Spell Trouble for Some Banks - The New York Times

1984@lemmy.today to Technology@lemmy.world – 491 points – ‘Zombie Offices’ Spell Trouble for Some Banks
nytimes.com

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.

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If they can't afford to lose money, they should stop being poor.

They should stop buying avocado toast and make their coffee at home!

It’s really not that hard.

They should sell the buildings...

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.

Converting offices is expensive and complicated. Zoning laws also makes it even harder.

It's a solid solution only if someone ponies up the money to pay for the incredible effort it takes to convert an office building into residences. Waving your hands in the air and telling someone else to pay for it is not a good argument.

Are you watching me? How did you know I was waving my hands in the air?

Let those banks burn. I could not care less. Let the commercial real estate market burn with em.

We don’t need them.

You do know if that sector fails, so does your pension, and probably a whole load of the economy.

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.

It is bullshit that they want to hurt the masses instead of the bottom line taking a hit

Pension, lol. What is this, the fifties?

In the U.K. every employee have to have a pension by law.

When were you born, 1950? Who the fuck has a pension at this point?

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.

Where are you that it is unionized? Around me, any talk of unionization among my peers is always dismissed as something that would upset the gravy train and cause all our jobs to be offshored.

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.

I have a pension through work, and through the government.

So you work for the government? One of the few to only sectors left in the USA with a pension.

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.

When I got my first proper job at the turn of the century, it was the first thing I signed up to... A shitty stakeholder pension as my company was paying 8% into it

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.

Turning office space into living space is often mentioned in discussions like this. It should be noted that converting the space is not as easy as it seems. In particular, moving the plumbing infrastructure to support individual bathrooms and kitchens is extremely challenging and it makes some projects impracticable.

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.

It's also not even a valid talking point. Sure, SOME work will need to be done, but office buildings are built to be modular by design, and are much easier to retrofit than these bloviating idiots online love to yap about without evidence. Buildings have plumbing and electricity for a number of people that will be vastly different than if it was apartments. Think about a bathroom with 10 stalls and 4 sinks being reduced to one with a shower.

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.

Most probably... I don't know, but if we did, good shout and good memory 👍

A collapse of the commercial real estate market would spill over to the larger market and most certainly impact any investments you have. We don’t really want banks to go under in big ways, it always ends up hurting the poor and middle class the most.

Given the overwhelming amount of debt the general public has, having the rich share the load and lose their shirts too would be nice. At this point there isn't much left for us unmoneyed people and watching the system they rely on burn them as much as it hurts is is fine. Let the rich lose.

The really rich can loose more shirts than any of the rest of is will own in 10 lifetimes and not be meaningfully impacted. Not only do they have other shirts, when the fire gets put out they still have the capital from other places that they will use to buy up the pieces at rock bottom prices and profit throughout the rebuild. Outside of situations like the whole GameStop situation from a bit ago, you're not going to screw over ultra rich people by having markets fail. Everyone else will suffer why they are mildly inconvenienced.

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.

Yea I was being as neutral as possible in my answer. I agree it absolutely would be worse than 2008. I don't think nationalizing the assets are going to work in this environment. The best we can hope for is regulation, but in the specific situation no one really did anything wrong. A Global pandemic flipped norms on their head.

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.

There could be individual banks over-leveraged in commercial real estate, but those aren’t important. At this scale it’s large enough to cause a a major recession or crash. We’ve seen smaller banks fail recently.

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.

Yep, been saying this for years now, the vicious and irrational hatred against work from home employees is driven by two main factors:

  1. At a systemic level, despite work from home being obviously less costly in the long run than maintaining an office space, if work from home were allowed to proliferate it basically pop the commercial real estate bubble and then basically every corrupt mayor and idiots in upper management would be shown to be corrupt idiots.

  2. At a more personal level, upper and middle management people essentially get their kicks from seeing busy little worker bees near them, and they would personally have existential crisis when they realize that 90% of what they do is negging and then ommitting or misrepresenting that in actual meetings. Actual meetings which can easily take place in zoom, or often replaced with just an email.

Another part of #2 is they can no longer be toxic and verbally abusive, like they could in person. Anything virtual might be recorded and every email is a record.

Thats a key element as well, the insane corpo manipulation that only exists if you can prove it even though everyone who doesnt up their head up either their own ass or someone elses knows is absurdly rampant... but youre too busy to record it all!

And you can’t sleep with employees who work from home.

I count my wife as my secretary every now and then, does that count? ( ͡° ͜ʖ ͡°)

She's already signed an agreement that supersedes HR policy on the pen in company ink: A marriage license

If only there was some solution to unused corporate office space and the housing crisis that has tents in every city?!?

Oh well. Better give the bank a bailout and stop thinking about it.

Wait...are you suggesting we solve a problem? Or even two problems simultaneously? That's absurd! We need tax cuts, deregulation, and corporate bailouts....I may not know the problem, but I know the solution. /s

That doesn't make sense. The companies that want people to come back to the office are the ones paying rent. That rent doesn't get better or worse if people come back to the office.

These companies tend to own or have long term leases, so either they are stuck paying rent and have to justify the expense or they own an asset that is depreciating in value and they could stop that from happening by spending no money to force their employees back into the office. You have to think about the big money, too. Real estate is a cornerstone asset for big money, many banks and real estate empires hold these enormous office buildings and society trending towards WFH means those buildings are rapidly losing their value.

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?

these leases are like 10 to 30 years, its not like a yearly one.

I'm aware, but that doesn't negate my point. The tenant company still has to pay more in utilities and such to bring people back to the office. Whether they pay that cost for 10, 20, however many years is extraneous.

A lot of larger citys will also have things on the books (not sure if it will effect commercial zoned buildings) but if they are empty they will be charged much higher tax rates. And also if you turn on the lights in a place its normally the whole area is turned on. So if they get 3 people to come in they are spending the same power that a full office would need (assuming they have workstations there) if not then they need to wait till the contract they have allows for some sort not full payout with other penalties (which when you see a biz go under the lease holder will be part of the creditors that get money well before employees).

Why would anybody get into an unbreakable office lease of 10 years? Let alone 30.

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 assure you biz X (which they are on the board of if not the CEO outright) 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.

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.

But those rent paying companies have very wealthy boards who are invested in commercial real estate.

And the companies are controlled by venture capitalists, who are smart and distribute their investments. So they have interests in various companies, including the real estate companies.

Oh won't somebody think of the shareholders.

Oh wait, I'm doing it right now. Mua ha ha ha ha ha ha!

It's sad that problems for banks are never problems only for banks. They always turn into problems for everybody else

Apparently literally everything is technology according to lemmy

RTO/WFH definitely impacts tech workers the most, I think that’s just obvious.

The logic seems to be, "if it impacts tech workers or people interested in tech in any way, it's technology".

In a way it is. Modern office buildings are only possible due to technological advancement.

I just ate ravioli. I’m sure they were packaged in an automated fashion. I’m gonna now post about ravioli in c/technology since it’s all the same. For now here’s some recipes https://www.tasteofhome.com/collection/ravioli-recipes-thatll-fill-you-with-joy/

Where's the meandering SEO-optimisation backstory-rambling before the recipe/link?

Please write it with writing quill technology and send it to me using homing pigeon technology.

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Damn, squatting on real estate is backfiring. I'm heartbroken

I will never have sympathy for landlords.

Easiest 'job' on the planet.

Fuck em

For sure. Business investments go up and down all the time. That’s business

I’m more concerned about trains/transit. After all these years, we (US) are finally investing in improving transportation within and between cities, just as commutes have been cut and many cities may be depopulating.

This is simply sunk cost fallacy. Companies signed leases. Now they regret it but can't back out so they've got to try to pretend it's worth it even if it costs their employees money out of pocket.

It's not really about owners it's more about leases and the company leasing the property "not getting their money's worth"

Often they have signed leases with themselves. With original owners, holding companies etc.

This is a way of extracting value from a corporation without paying it as a dividend or salary. Dividends go to all shareholders. Lease payments go to one specific one.

So obviously if there's no reason to pay these leases anymore, somebody powerful is going to be very upset.

I live in New York. The Wall Street area has been turning older buildings into living spaces for a while. One old office building became an NYU dorm, and the Woolworth Building [once the tallest in the world] is now luxury condos.

And you know what's nice about doing that? It's people present 24/7 and that means stores and restaurants that can be open even past office hours!

It's funny because back in the day, you could go down to Wall Street on a Sunday and have the whole place to yourself. Today, there are lots of bars and restaurants and groceries.

The only time I went was about 8 years ago on a Thursday evening and the place was dead, a few people that worked late and were going home, a few tourists here and there and that's it...

I was visiting a friend down there and walked back to my hotel at 2am. Literally the only people out were a bunch of cops standing around empty street corners.

So, you're surprised that people with nice apartments full of goodies aren't hanging out on street corners?

I had to start going back to the office today. I'll eventually split time between two buildings, but my main office is practically empty. Been here 3 days in a row, and I'm the only one in my area that stayed the entire day. The first day 4 of 5 other people left at lunch. The last person left about 4:15pm.

Yestersay I was by myself until about 10am and that person left at 4. I'm here by myself today and I don't suspect anyone will show up late.

On the other side of the floor where the breakroom is, there's maybe been 7 people total across the 3 days I've been here lol.

Yeah it's like that now. People come in late and leave early. I do that too since it's fine. Only one office day is required and I make sure to come in late and leave early to beat traffic. Everyone does. :)

I use it as a day of socializing with the team. Just talking. Not much work.

Same for me. I'm more productive at home and the occasional office visit is primarily for socializing with coworkers. There's only one other person in my team in my office location and we just schedule 2 or 3 days a month where we meet up in the office to catch up.

Yeah, I get the socializing aspect and it hasn't been bad coming in. I've been wfh for the past like 4 years so it's nice to put on actual clothes instead of wearing joggers and t-shirts every day lol. You're lucky you're only required to come in one day a week. We have to come in 3 days (eventually we'll be monitored to make sure we come in 3 days) but at least we can pick the 3 days every week.

On the plus side, we have assigned cubes (no hotel cubes thankfully!) and since I was part of the first small group to come in, I was able to change cubes.

However, I still think it's BS that companies are forcing the back to work crap with such strict boundaries.

I know, I got very lucky with just one day in the office. And that is so important to me that I don't even consider looking at other jobs right now. I will stay here for at least another year, probably even longer. Just because of that super nice single office day per week.

Every other job ad I see have "50% in office".

For me, it’s important as a mental health thing. Working from home, I tend not to see other humans and not go anywhere I don’t need to. I’m also poor at establishing work-life boundaries.

Meanwhile, going into work means getting presentable, interacting with people, not forgetting a lunch break, and I tend to stop working when the place empties out.

It’s also important for career advancement. I’m poor at self-promotion, so working from home is “out of sight, out of mind” no matter how much I do. It’s easy to say that management needs to figure that out, but it’s in my self-interest to make sure they realize when I get shit done

Well yes, sounds like the office is better for you with your personality traits. The issue is when they want all of us to sit there and try to work in an environment that is horrible for work (for the ones of us who needs focus and silence).

Also i agree about career advancement being better in offices, which is why I'm a consultant so I don't have to care.

Meanwhile my company wants to double or even triple the amount of office space we lease in the next 2-3 years, but building management is quoting us prices that are even slightly higher than they were in 2020.

Prices only go up. If a price is allowed to fall then the gravy train stops and the owner class gets really salty.

Kinda sounds like the board of your company is full of real estate developers who still win if you guys go tits up.

No not really. We're already hybrid remote, our business is just growing. We're already hot desking but that will only get you so far. We currently rent 1 floor of a skyscraper, we want to also lease the completely empty floor above us but the prices are what they were when we signed our current lease a few years ago.

If you're holding onto something useless and eating up your budget, like, that's on you, bro.

What's that you say? Rezone these as residential and make more housing you say?

Fwiw, turning most of these buildings into livable spaces is a lot harder and more expensive than you'd expect. For many of them, it would actually be cheaper to just raze it and create a new residential building, even if it maintains the same outer dimensions.

So... rezone for residential, tear down, rebuild for residential....

Yes, that's one possibility. But if your goal is to create a multi-unit residential housing building, you would probably choose a location that doesn't already have a giant office building in the way.

There is no better alternative than turning these offices into housing. Forcing people to work in offices again is worse and keeping them empty is also worse.

A big advantage of converting them is there is already a lot of desirable infrastructure in place. Public transportation, shops, restaurants, everything is there already. Building apartment complexes at the edge of town might be cheaper but there usually is nothing there.

I also doubt that it's actually cheaper to raze and rebuild for that many buildings. The only real trouble is upgrading the plumbing. Everything else is definitely offset buy using the existing shell.

Some buildings have a floorplan that doesn't really work for residential but there is also no need to convert all offices. Pick the ones that are best suited and keep the remaining to satisfy the reduced need for office space.

The only real issue is that the current owner of the building obviously prefer just forcing people back into office since that's more profitable. So it would take government subsidies and incentives for them to make the switch more profitable. And then we are once again putting hundred of millions into the pockets of already rich people. But it's cheaper for the city and better for the people so while a tough pill to swallow, it's still beats any alternative.

I just hope something can be done with the empty structures. Turning them into housing is easier said than done for many buildings.

This is a good post, but I'm not sure it belongs in technology. Hmm.

The connection is mostly that tech companies have been wanting people back to offices for years now, so it kind of made sense to place this also in tech. But I know what you mean.

I'm a union commercial electrician where I spent a decade building and improving tenant spaces in commercial towers in Seattle and Bellevue. There's a huge dip in our work now that there aren't high rises being occupied. I'd like people to work from home, but my blue collar job can't be done from home. If we can change what these buildings are used for I wouldn't be worried.

Google here in Fremont area on the other hand is expanding their space by occupying a larger foot print with a smaller work force per square foot. That's a good way to keep us working.

I don’t know anything about being an electrician - commercial or otherwise, so I’m curious to hear your side.

When all those people go to working remote, it’s not like they’re no longer in need of electricity. Presumably their home demand is higher and we might even see people adding new office spaces to adapt their home. Maybe the public grid needs to change to support it? Won’t this mean that there will just be a different type of demand for electricians?

Are there reasons this would be less attractive to electricians? Pay, job security, or something else?

There are many different types of electrical workers. I'm a commercial inside wireman. I'm licensed to install electrical infrastructure and maintain electrical infrastructure in commercial and industrial complexes. I have a wide range of work I can do, but to put it simply I only have a job if: Complexes are being built (I'm doing construction) Complexes are being used (this is mostly industrial since commercial spaces have building engineers that mostly took over our maintaince work).

People working from home eliminate both my outlets of work. Residential electricians make significantly less than I do, and their work is pretty similar but dedicated to homes. But even their work would be cut because if we're talking office employees making an office at home, there's not much if anything required of any electrician for someone to set up a computer and a desk in their home. The grid will be using much less power due to drop in facilities.

But it's not just my job as an electrician. It's construction in the city as a whole and even the city economy. Because outside of the residential district in cities, people working from home in the suburbs aren't utilizing the city infrastructure and commercial goods.

Fremont in Seattle has a large presence with many employees. The tech here tries to stay very competitive so Google was providing their employees with beautiful breakfast and lunch amenities. This created such a blow to Fremonts local restaurants that Seattle had to implement a special tax for serving food in your complex. Basically food cannot be free.

This is but one industry being impacted with employees no longer having a presence in the city high rises they're employed at. Construction slowing or being fully eliminated will remove our presence in the city, majority of tradesmen. Tech will invest less because employees will take care of their own facilities by working from home. Now the economy takes a hit, we don't have work in the city, restaurants don't have customers, and the jobs of the office workers are suddenly finding themselves not needed as much either. Now residential high rises in the city are being vacated. The towers are losing employees and residents. The city stagnants. Economy crashes.

Of course this is pretty dramatic, and very generalized. But people working from home effects A LOT including a few steps down, their own careers.

This is the best summary I could come up with:

Employees sent to work from home at the start of the pandemic have not fully returned, a situation that, combined with high interest rates, is wiping out value in a major class of commercial real estate.

The past week brought a taste of the brewing problems when New York Community Bank’s stock plunged after the lender disclosed unexpected losses on real estate loans tied to both office and apartment buildings.

When a string of banks failed last spring — partly because of rising interest rates that had reduced the value of their assets — analysts fretted that commercial real estate could trigger a wider set of problems.

In other cases, banks are using short-term extensions rather than taking over struggling buildings or renewing now-unworkable leases — hoping that interest rates will come down, which would help lift property values, and that workers will return.

The value of bank assets has taken a beating amid higher Fed rates, Mr. Piskorski and Ms. Jiang found in their paper, which means that mounting commercial real estate losses could leave many institutions in bad shape.

“Commercial real estate is an area that we’ve long been aware could create financial stability risks or losses in the banking system, and this is something that requires careful supervisory attention,” Treasury Secretary Janet L. Yellen said during congressional testimony this week.

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