[theandrewbailey]

> It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic.

And that's what I think is behind much of the push for RTO. While a lot (if not most) office space is rented, corporate executives are the kind of people who could have a lot of money invested in commercial real estate. They see this large threat to their portfolios, so they're trying to keep their assets from depreciating.

[jjav]

> corporate executives are the kind of people who could have a lot of money invested in commercial real estate

Sure, many of them do.

But there's something else they are far more invested in: their company (through huge pay and even larger stock option grants).

I don't buy this meme that CxOs are willing to hurt company efficiency just to protect personal real estate investments, when for nearly all executive (I'm sure there's some exception but not enough to matter) they own far more share in the company than in their side business in real estate.

[johnnyanmac]

>I don't buy this meme that CxOs are willing to hurt company efficiency just to protect personal real estate investments

I do. Think of all the inefficiencies you've seen reported (or reported yourself) and nothing is done. On the grand scale companies have abandoned the idea of retaining talent altogether, with best performers leaving over the refusal for some 10% CoL raise and hiring/training a new person for 20% more.

I think the most dangerous part is that these aren't rational actors fully focused on maximizing long term profits. So they aren't making seemingly rational decisions.

As an alternative viewpoint, there are probably a lot of peer pressure from people we never see nor hear about that can influence these CxO's as well. They are still people at the end of the day (85% of the time or so). if their friends or [company they admire] do something they will follow suit, no matter how incompatible it is with their company.

[l33tman]

I asked the CTO/R&D manager at a company I worked for once why he didn't bother getting talent or retaining talent, he said (paraphrasing): "Because I can't scale talent I might as well don't bother with it"

Many large corps are fine with being on the thick part of the Bell curve, their managers can easily scale if the board says they should output more, they are essentially linearizing their whole company around a point and they can scale up/down around it.

It works until someone else innovates and beats them, and then the loop repeats.

It's in some sense good that CxO's behave like this, because it leaves opportunities for smaller companies all the time.

[jncfhnb]

Agreed. But, companies are owned primarily by funds that in turn are exposed. If there is some pressuring to save real estate, it’s not the C suite, it’s the stockholding giants

[mitthrowaway2]

I think this doesn't get enough attention. The biggest shareholders in many companies are index funds like Vanguard and BlackRock, which often have the right to vote on behalf of the shares in their ETFs. Their interests are in ensuring the entire ETF goes up, and a real estate deleveraging would do the opposite.

[phkahler]

>> Their interests are in ensuring the entire ETF goes up...

Things like automatic enrolment in 401K plans, or automatically bumping employee contributions by 1 percent will also benefit the broad market and funds.

[mitthrowaway2]

Yes, as does curing COVID and protecting the environment.[1] And on the less good side: broad-based price hikes instead of fighting with the competition over market share in a race to the bottom.[2] It remains to be seen whether ETF ownership is connected to "greedflation", but I believe so.

[1] https://newsletterhunt.com/emails/12216

[2] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2632024

[krageon]

You shouldn't assume this much competence of anyone, including anyone in upper management. This is a fallacy both you and the GP make, though it is a bit easier to believe that they think their company suffers because people work from home. It is a fairly incompetent attitude, with very little if any basis in real data.

[sirspacey]

Having spoken with over 100 CXOs and founders on this, this is never the issue. If you invest in corporate real estate you do it through a liquid vehicle, not owning the actual contracts.

The push to RTO boils down to:

- leaders want the over-committed. Remote doesn’t feel like that.

- they miss working in person as a team and the fuel it provides for getting things done. Remote doesn’t feel like that.

It is almost universally a gut-sense that has driven the effort.

I think it does make sense for the leadership team and their close team members to work in person most of the time.

But there’s a funny flip side to this - almost all of them are on the road most of the time. Coming back to an empty office sucks.

I’ve been building remote-first companies my whole career. I prefer frequent onsites to offices.

But in the end, the prestige of the office, social cohesion of organizing life around it, and personal sense of power from having a team around you are unlikely to be replaced by any alternative for most leaders.

[anon291]

What I don't think people realize is that, in general, the people that stand the most to lose from these kinds of things are not banks. Banks typically hold assets for others, not in their own right.

By far, the biggest investor in real estate is government pension funds. Government has every vested interest to enforce RTO, because without it, if companies stop leasing space, then government pension funds will be unable to pay out.

All too often people assume 'greedy bankers' are the ones who are going to lose. That's wrong. Bankers are the middle men. Bankers don't care. They'll get their cut.

[brailsafe]

Isn't a lot of that tied up in residential real estate investment trusts though, which offer the much more perverse incentive of pushing rents as high as they'll go, to the point of increasing homelessness?

[anon291]

It's tied up in both. Pension funds were severely underfunded, and unlike a 401k, they're defined benefit. Money was promised decades ago and now it's time to pay up, but they're not at where they need to be to make payments.

Thus... there's no other option. Government has had to seek out incredibly dangerous investments. The largest purchaser of hedge funds, venture cap, etc... is pension funds. People claim evil capitalists are driving greed in expected return. To the contrary. The government is demanding high rates of return, and enterpreneurs and capitalists are providing a supply.

Then, when things go wrong as they inevitably will, because you can't beat the market's valuations, everyone points fingers. But the demand for the high rate of return is primarily driven by government pension funds. Without them, a more modest rate of return would be demanded, and companies like BlackRock, Vanguard, etc, wouldn't be incentivized to purchase commercial or residential real estate in those amounts.

[api]

Real estate infuriates me to the point that I find myself hoping it burns to the ground and that the whole industry suffers.

“Real estate always goes up” is treated like a damn entitlement to the point that the financial well being of everyone under 40 today has been sacrificed to it. In 2008 it felt like the entire real economy was put on the chopping block to bail it out.

I’d love for a real estate market that looks like Japan. That way the real economy built around people actually doing things could flourish free from endless real estate idle rent extraction.

[lwansbrough]

Agreed. The de-risking of the housing market has been disastrous for <= millennials.

The de-risking has come in the form of artificial scarcity caused by zoning gatekeeping and outdated fire code, amongst other things. It’s time North America took a hard look at the root causes and fixes them before there is a crisis of confidence in leadership (which is already happened to me - I’m moving out instead of buying in to the insanity.)

[bcrosby95]

It really started with Greenspan's juicing the markets in the early '00s due to the dotcom bust and 9/11. We got a short reprieve after the 2008 crash. But the markets have been fucked up for a while now.

Arguably the '08 crash was bad long term too. As far as I've read, a lot of people got out of the industry after that, which made it even harder to build.

[highcountess]

He was juicing the real estate market before the aughts, and he was even warned before the aughts. There are clear indications and evidence that he did that with designs.

[Zafira]

I think the general consensus is that Greenspan was an ideologist and effectively a useless Fed chair since he didn’t believe in regulation. The only reason he was probably not ousted was because he had enablers with the added leverage that the economy was doing pretty well during his tenure.

[rickydroll]

> The de-risking of the housing market has been disastrous for not(1%class)

fify,

the problems are class-based, not age/generation-based. the intergenerational conflict is fed by the 1% to keep us from paying attention to how they are robbing us.

[brewdad]

It's both. The class of younger generations who can afford to be homeowners is much smaller than it was when previous generations were that age. Sure, it was never easy for most 30 year olds to buy a home but now a 30 year old has had to have a LOT of things swing their way to even consider it.

[wyre]

I don’t mind this narrative and you’re true in most areas, but home ownership is so tightly correlated with generation OP’s comment in not incorrect.

At every age baby boomers were more likely to own a home than millennials at the same age.

https://research.stlouisfed.org/publications/economic-synops...

[nordsieck]

None of that would be a problem if people could just build.

We need to double the number of bedrooms in most major cities.

[yowzadave]

You probably mean we need to double the number of bedrooms available for sale/rent

[nordsieck]

> You probably mean we need to double the number of bedrooms available for sale/rent

No. I mean double the total number of bedrooms.

It is absolutely necessary public policy to completely gut the price of real estate across the country. I am aware that it'll be painful.

[yowzadave]

I'm not objecting to causing pain for property owners, I'm saying that doubling the number of bedrooms in a city is nonsensical (if you double the amount of residential area in a city, where will it go?), and also that you're underestimating the impact on the market of a relatively small increase in supply.

[tzs]

There aren't enough people in most major cities to come anywhere occupying that many bedrooms. Are there enough people in rural areas, suburbs, and minor cities that want to move to major cities to supply renters for them?

[nordsieck]

> There aren't enough people in most major cities to come anywhere occupying that many bedrooms.

Right now.

But that's because it's too expensive to live there, so people move to outlying areas. But if the cost of housing starts to drop, people will start moving in, which will stymie the cost declines.

I'll admit that I'm not intimately familiar with all of the large cities in the US, but Seattle would be a slam dunk. The suburbs are way more populace than the city itself.

Same with San Francisco, although that city has more problems than just a shortage of housing.

I'm not sure to classify New York City, but Manhattan could easily double its bedrooms with no shortage of demand.

[majormajor]

You ain't gonna make it cheap, exactly, in those places. Look at Manhattan compared to Seattle - there's ALREADY far more dense housing in NYC than Seattle, yet prices stay high. People will be willing to pay more for those places with more amenities. That will continue.

But you're gonna make it a lot more livable and arrest the rate of inflation.

[charlie0]

Voting with your feet is the most practical option.

[jjav]

I know it's not what seems like the most fun solution but there is merit in this.

For anyone in their 20s or 30s.. you only have so many years even if it seems life is long. If your current city makes it impossible to have the housing you want you have two choices. Try to change it, which is noble but can take many decades. Or move.

I can't fault anyone for trying to change it since improvement is a great cause. But do you want to find yourself 60 years old, still waiting for those changes?

I'm on the younger side of GenX so not in my 20s anymore. But when I was in my 20s I wanted to desperately live in my chosen city (Manhattan). I tried everything but it was way too expensive to reasonably rent, forget buying. I gave up and moved and bought a nice house for less money than a closet in Manhattan.

[charlie0]

The compromise here could be you can now have vacations in Manhattan. There's an odd thing that happens to most of us where we become convinced we HAVE TO live in certain places and we get tunnel vision because of that. Personally, I think the sweet spot is living 20-40 minutes of such places. It tends to be more peaceful further from downtown areas, considerably more affordable, yet still close enough you could day-trip it and enjoy the amenities.

[jjav]

> I think the sweet spot is living 20-40 minutes of such places

Well it's more than that (where is it cheap 20 minutes from Manhattan?), but in general you're right.

Move out to the suburbs, far enough that it's cheap(ish) but you can still visit.

[yunwal]

There are really really good reasons why certain places are expensive vs. cheap. Having no access to walkable areas, fresh food, education, safe water, or public amenities in general is not a dignified way to live for most people. It's not about fun, it's about your health, community, support system. Changing that situation in cheaper areas is not necessarily going to be easier than changing housing affordability.

[jjav]

> Having no access to walkable areas, fresh food, education, safe water, or public amenities in general is not a dignified way to live for most people.

These things are easily found outside of Manhattan (in my example, or whichever large downtown area you prefer).

In my little suburb I can walk to just about everything I could need, multiple farmers markets for fresh food (probably more than in Manhattan since there are many farms within an easy drive; not too many farms in Manhattan!), top rated schools, public parks, libraries, theaters, etc.

The only thing missing here compared to Manhattan is tons of bars within walking distance for the nightlife. There are a couple breweries within walking distance so that's good enough for me, given all the tradeoffs.

[charlie0]

I'd challenge that. I recently moved and was able to find a place that had all that and was cheaper. Having lived in big cities all my life, I totally believed that only big cities had this. Of course, now that I challenged myself to look outside the box, I was finally able to find something.

[mitthrowaway2]

I don't know of anywhere that I can move to in Canada that has the zoning rules I want and also a hospital. I'm not sure I could even find a place sans hospital. I think that means I have to vote with my ballot, not my feet.

[inhumantsar]

what zoning rules do you want?

[j7ake]

Calgary, Edmonton.

[api]

That’s what our family did.

[majormajor]

> “Real estate always goes up” is treated like a damn entitlement to the point that the financial well being of everyone under 40 today has been sacrificed to it. In 2008 it felt like the entire real economy was put on the chopping block to bail it out.

Real estate took a bath in 2008. So much that it scared developers and investors so much that they slowed building to ridiculous paces

If you want reasonable housing prices in the US you need either:

- to change demand so people want to leave today's dense and expensive cities and stop competing-up the prices. The "RTO is all about commercial real-estate" true-beleivers think remote work alone could do this, but the last few years aren't providing strong evidence of that. Density and geography have other appeals.

- or, some way to re-start massive construction in those in-demand areas to push rents and individual-unit pricing down... but in this case, the price of the real land would actually go way up (there's no development if there's no future value > present value)

[freitzkriesler2]

Hear hear. It's time for a teddy Roosevelt figure to come along and gut real estate investors.

[petre]

The US no longer has politicians like Teddy Roosevelt anywhere in sight.

[mtalantikite]

I mean, Bernie was pretty close until the machine behind the Democrats worked as hard as they could to force Biden. They almost took Bernie off the ballot here in New York when it was clear Biden was getting the nomination.

[bamboozled]

I realized the other day, and I might've been in denial about it, but I cannot return to my home city as it's just too expensive now. Even if I wanted too I simply couldn't afford it without introducing quite immense financial stress into my life.

In some way I hope it crashes as well, just so I can get back in if I wanted too, but on the other hand, so many of my friends and family have bought into the "real estate always goes up" mantra that if it goes backwards, they will be ruined financially. With interest rates up and their mortgage repayments going up dramatically, I've already seen more divorce than I ever imagined I'd see. The financial pressure just broke marriages.

In hindsight, I'm probably better off now that I moved away to a cheaper place in the mountains and leave nearly debt free. I invest my money rather than give it back to the bank with interest.

[_sys49152]

all those 'we are all in this together' billboards you saw posted up in 2020 wasnt for the frontline workers or cashiers.

[level1ten]

Why would frontline workers need further encouragement after their 12 hour shifts when they were already being rewarded in the form of window displays [1] and gift cards [2] to Chipotle and Bed Bath & Beyond?

[1] https://www.travelandleisure.com/travel-news/monuments-hotel...

[2] https://newsroom.chipotle.com/2021-04-27-Chipotle-Invites-Fa...

[jdlshore]

I’ve seen this conspiracy theory so many times, and it just doesn’t hold water for me. Let’s see some actual evidence, not baseless speculation.