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LikesBallsDeep t1_j61h2mu wrote

Reply to comment by OrangeSlimeSoda in Mayor Adams unveils proposal to convert Midtown offices into apartments by psychothumbs

Noone's forcing anything.

If you own an office building now and are losing a shit ton of money because it's mostly empty, this would just allow you (and maybe offer some incentives/zoning and code waivers) to convert it into apartments/condos so that you can stop losing a shit ton of money.

If you as the office owner prefer to keep it as an empty office and continue losing a shit ton of money, that's your god given right. It's also stupid, but being stupid is also your right.

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ehsurfskate t1_j64jxb4 wrote

There is ALOT you are missing and assuming with your assessment here.

First off is you are assuming there is no cash flow at all for these office spaces. There is and return to office continues to tick up. If it keeps going and if there is an event like a white collar recession employees will be more willing to go in and will have less bargaining power.

The second is you are assuming it would be more profitable to go residential. There are huge construction costs to make this transition, plus downtime where the building is empty and design costs. Residential is also less money per sf by ALOT.

The last and most important point is the value of commercial space versus residential. If you convert a building not only do you lose SF to get legal light and air plus egress for each unit, you lose huge value on the sf you do keep. This drops the value of your overall portfolio which you use to gain credit and borrow with (to the tune of tens of millions). These buildings are not all about cash flow for owners. They are giant stores of wealth for credit and borrowing.

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LikesBallsDeep t1_j667e6f wrote

You are stuck in 2019 world.

The old trend line of office space value is permanently gone. Adapt or perish.

Anyway, this is about allowing those that want to to do the conversion.

If you are right, nobody will want to, so no harm done, right?

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ehsurfskate t1_j677lji wrote

I’m not stuck anywhere and in my profession change and churn equal profit, I also work from home 3 days a week so not sure what you are on about.

I’m not sure why you are assuming it’s permanently gone either. Just as it changed to more wfh it can change back again. I hope it doesn’t but if we hit a recession and people need work they will go into the office if required.

I’m not saying it should not happen. I hope it does. I was just adding some context to the wide eyed people of this sun who may not know much about the commercial real estate market inner working besides - yay wfh new paradigm and yay more housing

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cavalryyy t1_j63kis1 wrote

I’m super on board with the idea of the conversions, but I’m curious how do you think they could handle the “everyone but me” mentality? Afaik it’s not like we have 60% of office buildings completely full and 40% completely empty. So if you own an office building and you hear that all the government is trying to get all the offices near you to close down, then by saying “okay everyone but me should close down, I’m going to stay open” you can usurp all their business.

Of course, it becomes highly irrational when everyone has this mentality, but it’s the same reason that people speed in traffic and cause more traffic. If everyone agrees, then everything’s great. But if everyone agrees, then the best strategy for me specifically is to not agree. But then this is true for everyone, so in reality no one (or a lot of people) decline.

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LikesBallsDeep t1_j64bt96 wrote

Sure, there's a bit of playing chicken with your competition.

If you and every other office owner are in the same boat, the question is do you convert first and lose less money waiting, maybe get more incentives, tap into the housing market when supply is still tight, or do you wait till your competitors do it and remove their office inventory from the market, maybe making yours more attractive again.

I think market dynamics have their faults but they're pretty good at finding that balance through pricing pressure, so I don't actually see this dilemma as a major concern. Or at least, it's not a reason to move forward with these conversions as an option.

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