69 sats \ 10 replies \ @xz 8 May \ parent \ on: Get Ready for Weaker Growth and Higher Inflation. The Consensus Was Wrong. econ
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.
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.
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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.
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I think that's the logical direction to go, but my understanding is that converting commercial real estate to residential is very costly.
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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.
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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?
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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.
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What's your best guess as to how this plays out?
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I really don't know. It depends on the structure. A local mall near me has suffered from vacancies. A few years back a giant Macy's box structure went vacant. A major hospital repurposed the building as medical facilities. I can't envision each usage, but I expect the "free market" will find entrepreneurs who will figure it out. The only time the government lets the free market step in is when they're fresh out of stupid ideas.
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The only time the government lets the free market step in is when they're fresh out of stupid ideas.
True. I wonder what those stupid ideas will be this time.
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