A New Kind of Urban Oasis
Why it’s time to think differently about our empty office spaces
Ric Edelman: It's Monday, November 27th. There's 100,000,000ft² of office space empty in this country. What if the situation stays that way? New York City is at 41% occupancy. The delinquent rate for office loans around the United States is right now only 5%. But it's expected to grow a lot. What are builders going to do to deal with all this? Landlords who aren't collecting rent? Bankers who aren't getting their rent payments?
Well, owners, they could invest to make their buildings more appealing, build new lobbies and elevators, upgrade everything. The coffee shops, the gyms. Landlords could choose to default on their loans; just hand the keys back to the bank, make it their problem.
Or they could do a conversion, turning office buildings into housing, hotels, retail spaces, laboratories. Up to 10% of New York City offices could be easy conversions. Finally, these landlords could simply do nothing. Go get an extension on their mortgage to keep the rate low. Remember, the bank doesn't want you to default either. They don't want you to send the keys back. They're in the banking business, not the real estate landlord business.
One idea, well, consider this: There’s 100,000 people in New York City who are living in homeless shelters. Well, there's an idea for a conversion. One company defaulted on a $250 million loan on a 33-story office tower in New York. The city doesn't want to see a whole lot of that. Banks have lent $3.5 trillion to commercial real estate. It represents 20% of bank deposits and banks, with less than $250 billion in assets. They hold three-quarters of all those loans across the country.
Yeah, it's not the big national banks that you know so well. It's the local town bank, the local regional bank that has lent to local real estate. And they've sold mortgage backed securities to raise cash that they then lent to developers. Does this sound at all like 2008? Yeah, it just might. But don't worry. As bad as 2008 was, we got out of that mess, and it'll be hard, but we'll get out of this one too.
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