Things will simply evolve. People said the same thing about industrial buildings in cities which are now thriving residential complexes. Lord and Taylor’s flagship store in Manhattan went bust and was going to become a WeWork, then when WeWork imploded the building was bought by Amazon and will become their offices. There won’t be a “property apocalypse” but there will be a “property evolution.”

In cities with diverse economies and a strong talent base this evolution happens quite quickly. Elsewhere it happens more slowly, and thus it’s more painful, but it will eventually happen there too.

That evolution is coming strangely close to us becoming company towns owned by billionaires. Little Vendorvilles everywhere. I wonder how much property Amazon will accumulate in the next few years.

edit: Oh, yeah, I pay rent and insurance to Berkshire today, guess I'm there.

Life could be better in company towns. They can create ecosystems of jobs that could better support the company's goals, and as the company reinvests funds to improve the quality of life and attract talent and labor, you could see improvements in things such as mass transit or perhaps a privatized police force with better accountability.

This is satire right?

The history of the company town is not all negative. Many company model towns were truly built to provide a better quality of life for workers, albeit with some very paternalistic overtones and often a desire to make them better workers as well.

Interestingly, the modern US military base still often resembles a company town. While not perfect, my impression is that life isn't worse then off base.

You're a lower enlisted. You live in an apartment complex, sharing a stairwell with 5 other lower enlisted families. One of you is tagged as stairwell coordinator. It's now your job to get everyone in that stairwell to clean the area regularly. If you fail, your boss hears about it.

You get promoted, you're now given duplex housing in the NCO housing area. You now have a yard. Your grass grows too long. The military police ticket you, and notify your supervisor.

You goto the store on post. A coworker is there. He's with some girl who isn't his wife.

You goto the dining facility. You have to go to the dining facility because your paycheck is automatically deducted $300+ a month because you are forced to have a meal card, regardless of how often you eat there.

Just a few examples from people I know. Everyone tries to get statement of non-availability so they can live off base.

A company town has no inherent need to police such vanities or moral character. It would be no worse than living somewhere with an HOA.

Fair. This makes sense. I didn't think of militaries as companies.

I guess the ideal situation is when your goals align with what the company wants out of you.

The opportunity of company towns is the opportunity of dictatorships: with fewer decision makers, longer-sighted decision can be rammed through.

For example, California could presumably make better housing decisions if existing property owners didn't get a say.

That said, the weaknesses of dictatorships obviously apply equally. A benevolent dictator leads to great happiness; a terrible one leads to hell that can only be overthrown by revolution.

That's an optimistic take (are you being sarcastic?). We've seen something similar with company stores in mining towns during the 19th and 20th centuries. They weren't exactly known for treating their residents (employees) fairly.

I'd expect a much more sophisticated 21st century take on company stores before some libertarian utopia.

I wouldn’t assume it’s going to happen - ever seen eastern Connecticut or Maryland, upstate NY, etc.? There are plenty of places which have been waiting for that eventually since the 1800s, with nice downtowns and plenty of industrial space but simply an insufficient number of ways people can make a living.

There’s a wicked critical mass factor where you need enough now to be able to get people to start businesses there rather than moving, and there’s a nasty feedback cycle with shrinking tax bases cutting into city services which is hard to break out of.

SF and NYC probably haven’t priced out enough diversity to get through this but there are a lot of cities which only need a couple of employers to fold or relocate to start having big challenges. Attracting teleworkers quickly enough could help but a lot of old industrial and even office space will require a lot of work to convert into residences.

There aren't quite as many thriving former industrial buildings as there are rusted hulks strewn about.

The ticking time bomb with commercial property is the debt. Many commercial real estate ventures are leveraged to the hilt. This is not unlike the housing crisis, although hopefully less painful because some underlying structural factors are less extreme (the government hasn’t felt obligated to buy the debt, unlike with home mortgages).

The same can be said for so-called 'Zombie' corporations. Many of them aren't growing and subsist because they have access to large quantities of low-interest debt, and partially due to the fact they employ many people, and one of the Fed's mandates is to promote low unemployment rates. When a lot of commercial real estate is sitting un- or underutilized, that's less workers and economic activity occurring.

The side effect is many metropolitan areas will be scrambling to make up loss tax revenue and if previous down turns are an example they are loathe to give up even questionable outlays. So this loss will be felt by investors and local governments

I still suspect companies which own their office properties will be willing to give it up, it never ceases to amaze me the pride some executives put into having their own head quarters with all the amenities. Some come across as offended when workers want to extend the work from home situation all the while praising their people for doing so well while working from home.

Commercial real estate is around a $16T industry in the USA: https://www.reit.com/data-research/research/nareit-research/...

Even with a correction in demand there will still be value in the property. The industry will not be wiped out.

There’s evidence of properties in NYC which have been vacant for 7+ years. These properties, even with the pandemic, have not budged their rent. They simply do not care if they’re not making money. They would rather preserve their capital, bank on appreciation, and not deal with tenants than fall prey to deflationary pressures.

The only explanation is the prevalence of some form of money laundering, an area I’m not an expert in.

These property owners are going to become like the Bitcoin HODLers. Their approach is sound as long as they are just riding out bumps in an economic cycle but will fall apart when their is a societal shift.

Commercial real estate is going the way of the newspaper industry - it will not go away, there will remain some successful examples, but the industry as a whole will be decimated.

> They would rather preserve their capital, bank on appreciation, and not deal with tenants than fall prey to deflationary pressures

New York and San Francisco laws capping rent increases also deter rent decreases. Particularly if the decrease might wind up being temporary.

They are reluctant to move the rent because commercial property value is highly dependent on the "perceived" rental value. Locking in low rents instantly wipes out the buildings value.

that's not the only explanation. they are plenty of lit market public policy outcomes that promote irrational markets.

its better that you aren't an expert in the lit market or the dark markets, god forbid the people form enough consensus to actually change it.

Not an expert either, but money laundering does seem to like real estate.

30% market correction will effectively wipe out many players in commercial real estate. Even less than that for many. Keep in mind, real estate is often highly levered so these property owners still have to pay a bank their money.

They’d just be underwater. But if the property is cash flow positive, over time they’d recover.

Not necessarily. For the prices to decrease, someone has to have to rent or sell. Many investors don't have such a need; especially in the commercial space.

I would imagine companies like WeWork may actually come out ahead here; because if your own company doesn't provide you with a place to work away from home, you might still need an office somewhere.

Some people do have a need, and some people don't. The people who do have a need will put their properties on the market. Their prices will undercut everyone else's.

Anyone who was thinking of selling but doesn't urgently need to will delay until it's not so much of a buyer's market. But this means there will be a buildup in the number of people who have been waiting to sell. So prices will recover slowly because it will be necessary to chew through this backlog.

But, as in any downturn, there are people who are sitting on cash and looking for bargains. They will buy up some of what's for sale. (Downturns always create chaos, and there are people who are financially ruined and other people who multiply their wealth dramatically.)

> Many investors don't have such a need; especially in the commercial space.

According to [1], as of 2015, 77% of commercial real estate is owned by private equity and REITs. Those types of investments primarily generate returns via dividends that come from rent. So it seems like most investors can't let them sit empty?

[1] - https://www.thebalance.com/what-is-commercial-real-estate-33....

Commercial real-estate leases are often much longer than residential, so, they won't be as affected as fast.

As a result, there's also a whole bunch of subleasing going on in commercial RE, hence, it may end up being a whole chain of random third-parties taking the loss for the owners of the buildings (e.g., companies that need to move out of their office after outgrowing it, etc). Surprisingly, this might make an even better argument for the come-back of WeWork -- their whole model from the start was to makeover the buildings abandoned by the tenants.

Likewise, it may not affect the sale price at all, because noone would want to tank their own REITs, even if the market itself is stale -- the owners have a vested interest in keeping the bubble afloat.

When my office lease is up next year, we will likely not renew. WeWork or similar is the likely new “office”.

I was thinking the same thing, however due to distancing requirements won't the companies that do maintain a physical office require significantly more space?

We may see a decline in the popularity of space-efficient open office spaces.

Most people owning commercial property dont give a fuuu. Unleased stores are sitting on NY market for 5-7 years and prices keep going up. It will all just sit idle as parked capital, and keep appreciating in value.

There will be some of that, but also - cubicles are coming back, so we are not going to be packed like sardines in noisy open-plan spaces. We might need all that space after all.

Why is that bad? Billionaires will have fewer billions? Why is that apocalypse?

Because you're wrong? REITs and private equity are incredibly important for pension funds, funding insurance policies, sovereign funds , etc. To think billionaires would be the most impacted by a real estate collapse is incredibly naive and wrong. The financial system isn't some sort of simplistic billionaires vs the world game.