How the Unicorn Blowup & Oil Bust Bleed into Commercial Mortgage-Backed Securities

CMBS get to eat it all: Amid overvalued vacant collateral, there is a new thingy: Tenants delaying rent payments and landlords asking for forbearance.

By Wolf Richter for WOLF STREET.

The office segment of the commercial real estate market – and the debt and the commercial mortgage-backed securities (CMBS) that are backed by it – are going through serious gyrations on a combination of factors. Companies have figured out how to make work-from-home manageable. Other companies are moving out, leaving buildings vacant, or are deferring rent payments. Landlords whose cashflow from rents has suddenly crashed are failing to make their mortgage payments or are asking for forbearance. And CMBS are at the receiving end of the process.

That any return to the old normal for landlords, banks, and holders of CMBS is just a dream is now being increasingly accepted, including by Larry Fink, CEO of mega asset-manager BlackRock: “I don’t think any company’s going to go back to 100% of the workforce in the office,” he said at an online event. “That means less congestion in cities. It means, more importantly, less need for commercial real estate.”

This new era of office real estate comes on top of the problems currently erupting: Tenants moving out for nicer digs, now that there are plenty available, or tenants laying off people and possibly shutting down. So here are two specific examples of how this is bleeding into CMBS.

In Houston, the office vacancy rate has been above 20% for years due to the oil-bust that started in late 2014. It was 22% in Q1, according to JLL’s Q1 2020 report. The construction boom that was still in full swing in 2015 has put a lot of brand-new Class A office towers on the market with little demand, as oil companies have shed office space.

Developers have been trying to fill those new towers, and in doing so, companies have moved from their prior digs into superb new spaces – the “flight to quality.” JLL:

After the true scale of the COVID-19 crisis emerged, Houston market observers are thinking, “here we go again.” Already beset by five years of skyrocketing vacancy, Houston’s office market may be headed for a double-dip thanks to an ailing energy market and a worsening Coronavirus situation.

JLL called it the market’s “split personality”: “heavy demand” for new buildings “counter-balanced by generationally-high vacancy, weak tenant demand, and a palpable sense of unease from energy sector volatility.”

And JLL added that on top of the “already weak quarter” in terms of signed leases, “the first quarter was further exacerbated by a near halting of leasing activity in the last few weeks of March.”

This is the environment in which the debt behind One City Centre at 1021 Main St. in downtown Houston is blowing up. This 602,000-square-foot office tower backs $100 million of CMBS debt. The collateral was appraised for $162 million at the time the debt was packaged into CMBS in 2015. And now, it turns out, according to Commercial Real Estate Direct, citing estimates by DBRS Morningstar, the tower might be worth only $35.7 million.

The interest-only $100-million mortgage, which matures in April 2025, is split into two pieces that have been included in two CMBS, according to a note sent out by Trepp, which analyses CMBS: a $60 million piece that makes up 7.9% in JPMBB 2015-C29; and a $40 million piece that makes up 3.4% of JPMBB 2015-C30, which is a part of CMBX 9.

The 32-floor tower, which was completed in 1960 and was renovated in 2010, had an occupancy rate of 68% in 2019. Its largest remaining tenant, Waste Management, which occupies 40% of the space, decided to not renew the lease that ends in December 2020. Instead, it will move into the brand-new Capitol Tower a few blocks away.

Also a few blocks from the One City Centre is the 1 million-square-foot Texas Tower that is expected to be completed in 2021.

So that $100-million mortgage, spread over two CMBS, will be backed by an essentially empty older tower that cannot compete with the new and vacant towers sprouting up, and that may be worth about 36% of its debt – and about 22% of its last “valuation.”

This theme has been playing out all over Houston: New towers attract tenants from older buildings, and older buildings empty out and turn into hugely overvalued collateral. Creditors and holders of CMBS are starting to grapple with this.

In San Francisco, the nuances are different. It’s not the oil bust but the startup bust and the accompanying Softbank bust. So here is an example how that bleeds into CMBS.

The 54,400-square-foot five-story office building, built in 1984, on 55 Green Street in San Francisco’s North Waterfront submarket is the collateral for a $36.6 million loan, which was originated in late 2019 and now forms 3.2% of the collateral in the CMBS COMM 2019-GC44. It was put on the servicers watch list in April, according to a note sent out by Trepp, which added: “The watchlist comment noted that relief was being requested as a result of COVID-19.”

The sole tenant of this building is peer-to-peer car-sharing unicorn Getaround, which leased the space in October 2018, after it had received $300 million in funding, led by SoftBank. Getaround moved into the space in April 2019. In September 2019, Getaround raised another $200 million, led by SoftBank, with investors agreeing on a $1.7 billion “valuation,” according to TechCrunch.  Fancy offices is the kind of stuff startup funding was being wasted on.

About four month later, in January 2020, long before the Virus started to wreak havoc among startups, Getaround  became the latest SoftBank gem to implement mass layoffs, 150 people, about a quarter of its workforce.

By March 20, as Getaround was starting to run low on cash, sources told Bloomberg that if it could not find a buyer or obtain a cash infusion, it may consider filing for bankruptcy.

By March 27, Getaround cut another 100 people, or about another quarter of its remaining workforce.

The company’s days are numbered. And even if it survives in whittled-down form, it won’t need this much office space. With the only tenant gone, this entire building would be vacant and generate no revenue, and the mortgage in the CMBS would likely go into default.

The building had been purchased for $29 million in 2018 and then was “repositioned.” To make it look good to investors when the $36.6 million loan was securitized in 2019, the collateral was “valued” at $64.3 million, giving it an appealing but now likely fake loan-to-value ratio of 57%.

These types of scenarios are now playing out all over the country: Overvalued office buildings that are now losing tenants make up the collateral for mortgages that have been securitized into CMBS.

And in addition, many of those tenants that are staying are delaying lease payments. This has caused landlords to seek forbearance on their mortgages and has thrown the entire CMBS market upside down.

According to Fitch Ratings, in terms of all types of CMBS, not just those backed by office buildings, 5,420 conduit borrowers (landlords) have contacted their servicer seeking relief over the past 30 days, representing 17% of the $584 billion of the CMBS that Fitch had surveyed, based on data from the largest CMBS master servicers (Wells Fargo, Midland Loan Services, KeyBank National Association, and Berkadia Commercial Mortgage).

In terms of the office segment, and the credit and securitization apparatus behind it, and the inflated “valuations” all this is based on: There is no way back to the old normal. A shakeout has now commenced, and when the shakeout is over – this could be a slow-moving process – there will be a new era with an oversupply of office space and chronically low demand.

No one has ever seen a mess like this before. Read..Used-Vehicle Wholesale Volume Collapsed, Prices Drop: Mega-Pain for Automakers, Leasing Companies, Rental-Car Companies, Banks, Bondholders, Stockholders

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  178 comments for “How the Unicorn Blowup & Oil Bust Bleed into Commercial Mortgage-Backed Securities

  1. AlbieOK says:

    And so it goes

    • Or perhaps not. Through the looking glass. Massive vacancies must lead to low rent eventually, drawing companies back in, but it’s hard to compete with employees paying your “office rent” for you. BUT…. judging by all of the bubble companies, office space is nothing but bubble-filler anyway, and a place for their marketing departments to play ping-pong.

      Anyone got insight into this office space being converted to habitable space?

      • VintageVNvet says:

        Actually, I do have a lot of experience, first hand on many projects in bay area as carpenter, then, when I was embarrasssing the younger guys because I did SO much more than they, estimator, project mgr, etc., etc…
        (And, in an important aside on this finance site, IF you believe that was the reason I, and many others are ”kicked up stairs”,,, please contact me immediately because I have a brand new deal on a really good bridge for you…) Thank you.
        ((Wolf has encouraged us to humour as the best med currently, with which I certainly agree!!))
        1. There are clearly a lot of challenges to converting ”office” type spaces to residential, but also clearly, they can be overcome with good, creative, and field experienced design professionals in my long experience as worker and contractor in bay area.
        2. A couple of specifics: a. all utilities will need space to be re-distributed per approx avg 1K SF instead of per floor, and ”metering” might be the biggest part of that. b. sometimes there are other challenges because of the change of ”occupancy” from office to residential.
        3. Far shore there are others, but, IMO, the point is that any structure actually ”keeping out the rain” is going to be able to be changed IF the will is there to work together to do so. And, if the costs of these properties, per SF, goes down as much as I can imagine they will based on recent events, almost all of them will be between good and very good candidates for conversion to res.

      • Jason says:

        It is so hard to predict the future.

        Here in Oz office densities have been increasing (square metre per worker). In many respects older buildings weren’t set up to handle high densities; their aircon and lift systems cannot cope and therefore aren’t such good spaces for call centres and battery lawyers.

        One outcome of the pandemic might be that employers decide that the workers who do come into the office need more space and hot desking is unhygienic. Therefore the lower cost per square metre offices might become more in vogue.

        Something else that might happen is more small satellite offices set up in the same big city to shorten commuter times.

        Or maybe suburban office space with big car parks might become vogue seeing that public transport is risky whilst dangerous viruses are about. Maybe this will be a use for all those ghost shopping malls we hear about in the US.

        We never know which way this will go. Good luck placing bets

    • scotts71 says:

      This asset write up is what is happening across the board.I just saw a shake, in Portland for 1.2 mil.. literally, you could write it off. 3yrs ago they took a loan on it. Now it’s default! Free money to the masses!

  2. Jdog says:

    What percentage of commercial mortgages do you think have been sold to pension funds?

    • Sydney Collin says:

      I don’t know the answer, but would suspect that percentage to increase substantially in this environment. My prediction is pension funds will be the ultimate bag holders which is in line with Mitch McConnell’s charter to crush the commoners.

    • Rubicon says:

      Jdog: “What percentage of commercial mortgages do you think have been sold to pension funds?”

      Just ask Black Rock. They own most of the pension $$$ in the US.

  3. DR DOOM says:

    I could get my BS in Chemistry in 2.5 years vs the 4 years it took in the 1970’s without a big building that was hardly utilized. It was a trophy building made for prestige not for use. You don’t let a snot nose freshman get any where near a GC mass Spec. I learned about using a Mass Spec when I bought one for my Enviromental Lab. It is time to rethink it all and I have to swallow hard but I agree with the Fink and He may have understated the impact on what’s coming. It very well may be a brave new world.

    • Joe says:

      Have you ever seen a high rise with a bad cement ever chip it out and redo the floor?
      No, I thought not…Never happens just keep building up.

      • VintageVNvet says:

        Just a quick note Joe: Look up ”concrete restoration” first, and you will see hundreds if not thousands of examples of replacement.
        The largest example was when a building in Oakland got thousands of cubic yards of bad mud, apparently deliberately vandalized by a disgruntled worker at the batch plant, and ended up tearing down many many stories because of it. Litigation may continue, but I am sure you can find that example quickly too.
        In the general case, at least many thousands of concrete exterior balconies built in 1980s era have been completely replaced because the mix had too much chlorides, and was falling, sometimes in huge chunks, a lot having been added to decrease time to strength, etc. In the early ”oughts” I was told by a product rep that condo replacement alone was a $4BB/year biz in only FL.

        • Joe says:

          My neighbor was the engineer whose job was strictly to design the rebar placements and sizes, bends needed, etc.
          He would be getting drawing from the beginning and the massive updates and changes that would keep coming in.
          So, do I have stories…including trying to incorporate a swimming pool they tried to incorporate after so many stories being built.
          It was too far gone in the build to safely incorporate it structurely.
          One design he caught had stairs designed into walls every second floor.
          It was unbelievable how many design changes a single project can have.
          This is downtown Toronto.

        • VintageVNvet says:

          Joe, I will only add my total respect and appreciation for the engineers of all kinds, but, especially those both willing and able to design and, more importantly, calculate the values for each and every piece of rebar…
          Most folks, even in our construction industry, have no idea re the work it takes to engineer any structure, but especially the very very beautiful structures of the last few decades and continuing.

  4. FinePrintGuy says:

    The neighbors better hope new commercial tenants are found. Otherwise the owners will lease it out to the city as a homeless shelter.
    City tried installing a shelter at the palace of fine arts a few weeks ago. “Temporary panic shelter” they claimed. Took a lot of uber wealthy citizens to block it. North water front doesn’t have the same NIMBY resistance I’m sure.

    • Stuart says:

      Let the cruelty of homelessness end with repurposed commercial real estate.

      • RD Blakeslee says:

        Anybody remember Pruitt–Igoe?

        High rises and low life didn’t mix – the building was eventually torn down

      • WES says:


        You seem to forget most homeless people do not want to be trapped inside a building, especially with other homeless people.

        • nick kelly says:

          None of the homeless people I know want a home.

        • RD Blakeslee says:

          What I don’t forget is my experience between ages 10 ans 16. I slept on a mattress in an unheated attic in Detroit until I got my first real job. Enuresis troubled me during that time, as well.

          I feel competent to express an opinion about those who do not get up and out of poverty. I was only trapped if I thought I was.

        • Gordian knot says:

          In this lockdown I’m starting to feel trapped. Is freedom found living in the streets? Freedom is small government me’s think.

        • kk says:

          Many years ago my father found an Scottish old man called Andy living in a shed of his – no water, no heat, sleeping on an old coat. He let him stay as he had no where to go, brought him coffee in the morning, paid him to badly do odd jobs, and spent hours talking over old times. This went on for years, although a couple of really cold winters almost saw Andy off and he was once rushed to hospital with pneumonia. My sister found out about this and tried to organise a protected apartment for Andy, but he didn’t want it, he said he couldn’t breathe in a house and liked waking up to the birds singing. My father passed away and l never thought about Andy, weeks after the funeral he turned up at my door after tracking me down somehow, he asked if my dad was alright, when l told Andy he was dead, he burst into tears. I offered him some cash, and Andy looked at me as though l was mad, ‘yer da was me friend’ he said. When l went around to the shed, Andy was gone. Some people like to live their own life.

        • VintageVNvet says:

          10-4 on that concept Wes,,, having talked to a bunch in the course of doing what I could, in line with the teaching from my parents inviting homeless into my birth home at every Christmas, I found that the ones still on the street really did not want anyone messing with them in any way,,, kinda like, if you think of it, the saints and sages of yore going door to door only long enough to get enough food for today.
          OTOH, the working folks in SF and so many other places that cannot find anywhere to live other than the street and even though they have some money,,, that is clearly another situation all together, and may be something to consider with re the likely high vacancy rates for commercial props going forward.

        • Michael Fiorillo says:

          Given that the majority of homeless are children, doesn’t that sort of undermine the homeless-as-eccentrics-and-rugged-individualists narrative?

        • RagnarD says:

          LIfe at the Bottom… great book on the a certain portion of the homeless population…

          As many above posted, there is definitely a cohort of homeless who are simply rolling stones. It may NOT look like an attractive liestyle to us, and even they seem to not want to do it 24/7 365, bu, that doesn’t mean they want a mortgage or 12 month lease. I can’t relate….

        • RagnarD says:

          I CAN relate

      • Orrin says:

        How thoughtful of you to repurpose someone else’s property in such a virtuous way. Can we repurpose your home next?

        • O'Brien says:

          Well we bailed out the banks, so it’s really our property isn’t it?

        • Mike Smith says:

          Who’s property is it ? The trades that built it have been paid. The materials have been paid. The land has been traded umpteen times. What is UNEARNED INCOME ? If you don’t pay the property taxes – the city owns it. I’m confused

      • Tony says:

        The “Cruelty” of not throwing public resources at traveling bums from all over America that come to San Francisco?

        Of the thousands of so called homeless we have run into in San Francisco around the Wharf and in North Beach, we have see ONE, who we knew as kids growing up here. Wayne, a poor Chinese kid who hangs out on the periphery of Chinatown, no teeth, long black hair, constantly itching. His parents died in the 1970s. All the others? Not from around here. Let them go back where they came from.

        If I traveled, say to Houston, to try and make it and ended up on the street, what right would I have to expect Houston to feed, shelter and support me?

  5. 2banana says:

    Any WeWork offices or buildings in the neighborhood?

    More square footage to be dumped on the market.

    • Arizona Slim says:

      Methinks that coworking is over. As in, we’ll soon be reading about it in business history books.

      Even in the best of times, coworking spaces have high turnover. If you don’t stay on top of the turnover and constantly recruit new tenants to replace those who have left, you are going to have a vacancy problem.

      Nowadays, who’s willing to sit in one of these spaces and risk his or her life? Sorry, but free beer won’t make a difference.

  6. Cookdoggie says:

    I get all this but at the same time you’ve been updating us weekly on how much MBS the Fed is buying. It was over $300 billion in your April 5 review. So won’t the Fed just keep plugging this hole in the dike too? I know theoretically it has to end badly but it seems like it never will.

    • Dale says:

      The Fed will in effect buy these buildings, then pay to tear them down, in order to artificially prop up the already artificially-inflated value of remaining buildings.

      From their perspective, it is necessary.

      • joe says:

        I’m afraid you are right. Cash for clunker buildings. Moronic Krugman thinking. I’ll just wait for the AGB (Alien Galactic Bank) to bail everything out with stardust.

      • Jdog says:

        The Fed is not some sort of omnipotent god. It cannot fix everything. It has limitations like everything else. People now seem to have an illogical faith in the Fed that borders on religious fanaticism….
        I expect in the next 6 mos, the Fed will become fairly irrelevent in the overall picture, focusing mainly on their member banks. It is not going to buy buildings and used cars…..

    • MC01 says:

      So far the Fed has only bought Agency Mortgage Backed Securities (MBS), meaning composed of home loans (residential mortgages) backed by Fannie Mae, Freddie Mac and Ginnie Mae. Everything else was just the usual jawboning originating from the Eccles Building.

      If security traders want to delude themselves into thinking the Fed will buy from them junk-rated Commercial MBS at a premium, let them. They’ll meet reality very soon.
      Like the European Central Bank and the Bank of Japan the Fed will likely just try and manage investment-grade yields to keep them from exploding. For all their boasts and targets they are rightly terrified of “garden variety” inflation blowing up: politicians have promised an insane amount of liquidity which, when dumped into economies that are likely to stay weak (if not getting weaker) for months will cause all kinds of fireworks. Prepare to see a lot of backpedaling over the next three/four months.

      With all the liquidity already around in the system assets such as office buildings will have no problems finding a buyer, provided we get rid of uncertainty soon and that prices fall to a level where investors may find at least enough yield to cover projected inflation.
      Everybody expects inflation to flare up so to get meaningful yields prices will have to fall a long way: whether this means at a fire sale or during the liquidation process is irrelevant.

      • GotCollateral says:

        Its not even just CMBS at risk here, its there for Agency MBS. FRBNY might cover par value on Agencies trash, but its certainly not gonna cover interest rates payments and this is gonna cause more problems in the repo market because no one is gonna trust the haircuts BNY Mellon throws out.

    • ricardo2000 says:

      “…”repositioned.” To make it look good to investors when the $36.6 million loan was securitized in 2019, the collateral was “valued” at $64.3 million, giving it an appealing but now likely fake loan-to-value ratio of 57%.”

      This is exactly what crushed the markets in 2007: fake valuations holding up impossibly optimistic ‘securities’. The ‘securities’ crashed taking Lehman, Bear Sterns, and AIG with them. But that didn’t scare Wall Street. They drooled with insatiable greed when Obama gave them a giant consequence-free bailout. This time there isn’t a functioning economy to provide a base for the bailout.

  7. Jdog says:

    I have this terrible feeling about the future. Like that Idiocracy was a prophecy and not a comedy…

  8. Rcohn says:

    Houston has been trying to diversify away from the oil industry for a number of years. However, the depth of the current decline is sure to have effects equivalent to a depression.
    SF is so expensive that it seems to be only a matter of time before prices fall if their own weight.

    The question that then results is how the pressure on office and retail prices will effect residential prices.?

    • Anthony A. says:

      Fortunately for the greater Houston area, RE prices are not in the stratosphere like in SF and other trendy places. Our 2,000 sq foot one story brick home in The Woodlands, Texas (north energy corridor) is valued at $250K. The home is 20 years old and in a very nice neighborhood.

      But boy are there layoffs in energy companies around here. But that goes with the territory. Glad I am retired (ex oil guy).

      • Sea Creature says:

        Yes, but the Texas single family home real estate (price) market is highly distorted by very high property taxes (north of 3% of house value in many of places).

        The result of this is that you not really buying a house, but are essentially buying a “right” from the previous owner to “rent” the house from the government, which is paid in the form of astronomically high property taxes. The amount of these taxes monthly typically exceed amount of the mortgage payment each month.

        The high taxes have the effect of keeping the “price” of the home artificially “low” (since if the sale price was higher, no one could afford the property taxes monthly on that sale price basis).

        Its the total monthly payment that matters (tax + mortgage). In Texas, tax usually exceeds mortgage each year.

        Then to top the icing on the cake, when you lose your job, even if you own your house outright, you’ll get evicted anyways, because remember you are really just “renting” the house from the government (with stratospheric property tax rates).. They will come and take it from you when those insane taxes don’t get paid..

        Houses in Texas aren’t actually cheap once you understand how the whole system works..

        • c1ue says:

          You can have low property tax rates – and thus have a huge mortgage or you can have the same cash flow going into higher rates of property tax and be paid off on the bank loan.
          Either way, schools need to be funded.

        • Frederick says:

          3 percent of property value IS high. I was paying 6.5k on a million dollar value in Sag Harbor and I thought that was high. My homeowners insurance was crazy high because I was within 100 yards of the bay or that’s what they used as an excuse to rip me off perhaps

        • Implicit says:

          Yep, the hazard insurance on a home was 10g/yr on sections of the south shore of Boston, Prices had to be knocked down a 100g to offset the yearly burden.

          A lot of people will,be questioning the value that towns and cities place on their property starting real soon.
          As they should. Get private appraisals and other data to support your case once the shyte hits the fan. Let it begin ; equilibrium always prevails eventually. Boyle’s law -hot air release.

        • Endeavor says:

          At least in Texas, the high property tax money mostly benefits the local economy. Lower mortgage amounts equal lower interest income going from the area to the big out of state financiers.

        • Harrold says:

          He said he was retired, he gets the majority of his property taxes ( the school portion ) frozen and additional tax exemptions.

        • Texas23 says:

          Get out of the city and property taxes are reasonable in Texas. On 50 acres and a house in East Texas, taxes last year where $803. Add in, no state income tax and average sales tax, I have a below average tax burden.

        • c1ue says:

          The low tax rate is *why* that home was valued at $6.5m
          If you paid $6.5k in taxes in Texas, that’s a $200k home (actually more)
          The difference? Bankster profits

        • Erich says:

          I always remind people when they point out that Texas has no state income tax that they make up for it in HIGH property and sales taxes. Schools, roads, courts and other things like that have to be funded some way.

        • Anthony A. says:

          Our property tax rates around my neck of the woods, and they are very nice woods, is about 2% and it has been for 20 years. We have no state income tax so the property tax is not that big a burden.

      • Ehtan in NoVA says:

        With telecommuting forced on many employers there is a good chance it will get adopted as a more mainstream thing. It might be possible for employees to escape clumping together in high priced cities.

        • Jon says:

          Before covid19 I was an ardent composer of telecommuting.
          But after a month working from home aka wfh I dont want to go back to office

          I am more productive wfh and can do better if I have proper wfh set up

          I guess a lot of people are now realizing this

          Wfh 4 days a week is an awesome thing and I can tell you for sure a lot of employees and employers would prefer wfh

          Tough for mid level managers though

        • Jon says:

          I mean ardent opposer

        • VintageVNvet says:

          Ethan and Jon,
          As a long long time ‘contractor’ of professional services in and out of office, I found that the best mix was continuously changing from WFH and work in office, depending on the situation:
          Days when bids due by 1400 and faxes 24 inches high had to be in office with support of, sometimes, ”all hands on deck,” other times, needing total concentration, home office was MUCH more productive, and my bosses/company owners were cool and competent enough to recognize the increased productivity at home office.
          Gonna be fun for all of us to work out just how to proceed, eh?

      • Robert says:

        Furthermore, Houston has an expanding manufacturing base that stands to benefit greatly from reduced energy costs. It’s not all oil and gas.

  9. rhodium says:

    If their employees are going to be working at home anyway, how long does it take before even more companies start getting more work done piecemeal via services like upwork or fiverr. I’m guessing the gig worker economy will advance all the faster due to this recession.

    • Suzie Alcatrez says:

      Managers won’t be letting employees work from home any longer than required even though those giant headquarters Facebook, Apple, etc no longer make sense.

      • WES says:


        GM is trying to bring their staff back into their open concept offices as fast as they can!

        • Endeavor says:

          That’s right. Friends daughter works at GM and has to work from home minimum of 1 day a week (pre-virus).
          Not enough work stations if all showed up on same day.

        • Kansas Sunflower says:

          GM may rue that decision when the next outbreak wave hits and it tears through such open-space “collaboration” areas. I sense a class-action lawsuit in their future if this happens by those affected who survive and the surviving family members of those who don’t. (Whether there is any money left at GM to take is another story)

          I work in a place that utilizes the open concept rooms for a large number of staff. Our management is sending messages that the rooms we left in March may not look the same when we return. My guess is it will be a mixture of rotating staff (half in/half work from home) and of reintroducing cube walls.

    • Brant Lee says:

      You mean working from home like in the Philippines and India? Hopefully, companies won’t discover even more ways how we can all be outsourced.

      • rhodium says:

        Well, if they realize that so much of their work doesn’t really require a physical presence (which they’ve already been learning, and this might just provide a jump in the marginal impact) then what stops them from saying hey since our employees can do remote anyway, can we find someone elsewhere in the world that can do this for cheaper? The infrastructure for it is already in place. I guess it depends on how rare various skills and abilities truly are.

        It’s already been noted that “large” tech companies have incredibly low numbers of employees relative to their revenues. A lot of business are progressively moving in that direction. I’m just guessing that like during the last recession, businesses will probably accelerate this shift especially as they get reaquainted with the idea of heavily utilizing and pushing a smaller number of their employees to do more of the job responsibilities that were previously done by someone else. If their remaining, and now more stressed employees complain, they’ll quickly go back to the old refrain “hey at least you have a job” which I noticed they were frustrated they couldn’t use during the relatively strong labor market years.

      • Frederick says:

        Globalization and the internet Aint it grand Gotta take the good with the bad I suppose

  10. JZ says:

    I recently have figured one thing out. No matter what happened to any asset, it will be swallowed by the PUBLIC through US treasury’s SPV (Sounds like STD virus to me) facilitated by FED. Carl Icahn said he is shorting CMBS and I am sure he will know 2 days before the PUBLIC swallow is announced and he will cover.

    • Implicit says:

      You might be right, but I think that I would take the other side of that bet.

  11. WES says:

    CMBS over valuations reminds me of liar loans.

  12. Paulo says:

    Just think of all those past articles about Chinese Ghost Cities compared to efficient America. I now remember that old adage about when you point your finger……

    Regarding Suzie’s comment: “Managers won’t be letting employees work from home any longer than required even though those giant headquarters Facebook, Apple, etc no longer make sense.”

    Might read…”micro managers won’t be letting….”

    My son-in-law presently works 10-12 hour days from home on Vancouver Island. His direct supervisor is in Ottawa and his clients are all over western Canada. Trust me, he wants to go back to the office for a more regimented and controlled day. I don’t know if it will ever happen? Nephew works for a large multi-national company. He is a senior vice pres in charge of logistics and supply chain, despite his engineering background. He is also working flat out doing minimum 12 hour days, with clients worldwide. No reason to ever go back to the office.

    Production and efficiency are easily measured by output and accomplishments. Perhaps this is a time in many organizations where ‘facetime’ at the office is seen for what it is. Maintaining an office to exert control is added cost, imho. Perhaps the managers are as endangered as the office mortgage holders. I do know this, when the pandemic crisis is over many things in our economy will be forever changed. Traditional facetime at the office and looking busy might be on that list.


    • O'Brien says:

      Managers need facetime for promotions as nobody plays golf anymore.

    • Josh says:

      I work for a tech company where everyone is currently working from home. From what I have heard there is a strong belief that people are being less productive at home. I personally blame the “kids being at home” for this rather than the fact that we are remote but I think they will use that as an excuse to get us back in the office when they can. I’d love to be able to continue working from the office when the schools reopen to see how that impacts productivity.

      • Gordian knot says:

        My son in law works for Blizzard in Irvine CA. They have been opposed to letting staff work from home. My daughter and her husband have been wanting to buy a home but could never afford one in the area. If allowed to work from home post lockdown they could move to Idaho and afford a home. That’s there hope.

        • Jdog says:

          NO not Idaho… Arizona and Texas are nice.. go there, but we do not need any more Californians in Idaho….

        • VintageVNvet says:

          SO sorry JD,,, too late,,, been ‘through’ ID twice the last two years, once traveling mostly north, once ditto mostly south: obvious that there were already WAAAY too many of the ”dreaded” calis already there, and, as was almost certain, doing exactly what brought on the ”decline and fall of the great state of California.”
          But, to be shore,,, that decline and fall is only in parts of CA. Other parts of that great state are just as they have been for many years: Hard working, expecting nothing from no body, etc…
          And, as such, I would not be at all surprised to see one of the ”divided CA” movements succeed sooner or later.

    • CZ says:

      Working from home. 1 day a week in the office would be adequate to reconnect, conduct biz that needs to done in person.

    • Saltcreep says:

      In my case I’ve found that whilst I’m not working face to face with clients I’m missing out a bit by not being with them to see directly what’s going on and root up new business in the process. I’m looking forward to properly going back to work again!

      I’ve found that it’s also much harder to find new clients now, both for the obvious reason that not many are making investments in this environment (tbf that’s been true since a while before the virus outbreak, too), and because most people simply want to meet in person before entering into business deals of some size. I haven’t had a single meeting, even remote, with potential clients or partners since the lockdown which started here a month and a half ago…

      It also feels a bit weird hanging around all day in my home office with a cup of coffee, unshowered, unshaven and wearing a dressing gown…

      • Tony says:

        What is a dressing gown?

        • Dos Tacos Mas says:

          “What is a dressing gown?”

          Look up “Lilly von Schtupp” from Blazing Saddles…

          Dwessing Gown…

        • Saltcreep says:

          A loose fitting garb that can be fastened around the waist, Tony, commanly worn upon getting up in the morning, or, as may be, in the afternoon during these home office days.

          For suaveness I’d recommend a black silk one with a dragon emblazoned across the back, but since style went out the window shortly after the lockdown I’m currently wearing a fluffy green one with coffee stains down the front.

        • Lisa_Hooker says:

          At first glance it appear’s that it is a gown worn while you get dressed in your street clothes, but I can’t figure out how that would work.

    • Implicit says:

      Micro managing too much, the tyrannic dread of a workplace that makes one hate a job :>[}

    • Engin-ear says:

      “Production and efficiency are easily measured by output and accomplishments”

      Oh no!

      Big companies have grown in such overcomplex and unmanagable monsters, that it is too complex to calculate precisely the added value of each operation.
      In addition, regulators’ pressure did create jobs which are there for “risk management”.

      So, in best case scenario, some jobs (tasks) create value instantly (like delivery service), somes jobs create jobs in future (risk prevention); and this temporal spread makes difficult to see the true value.

      You add to this a small (?) percentage of human mistakes and sometimes fraud, which people naturally prefer to hide, and you have an analytical problem too costly to solve.

      So many managers run the teams and departments as black boxes without sufficient understanding of who is doing what.

      So : no, Sir!
      In our global and tailorised work processes, value is not measured any more on individual level for many many jobs.

      • char says:

        People will deliver what is measured, not what is needed. This has been shown to be true time after time and leads to failure.

        • Islander says:

          Great quote. “People will deliver what is measured not what is needed”. I am going to steal it ;)

        • Jon says:

          People would delivery what brings visibility to them it does not matter if it brings value or not.

          In other words: Visibility is delivered rather than value!

          Atleast this is what I see in my company

        • Tony says:

          Wonderful concept. Allow me to extend it: People should pay taxes based on what government delivers to them.
          At the local level, San Francisco city government is an alien occupying force and my friends and I treat it and all of its fines, fees, permits, reporting and other “social responsibilities” as such.

        • Matt Belben says:

          I’ve heard that saying too somewhere: “You always get more of what you measure” (to which I’d add) “…usually at the expense of everything you don’t measure.”

          Just from what I’ve seen, I think it’s safe to say that whenever you start to measuring anything at work, you should always first assume that whatever change you’re seeing from doing that is zero-sum; ie. it’s just redistributing resources away from everything else. So it’s not enough just to measure something, you then need to prove that the change you see is both positive-sum (it’s a genuine improvement and not just redistribution), and additive (it wasn’t just going to happen anyway).

        • Lisa_Hooker says:

          A very long time ago I was coding my work in J (similar to APL) and delivered half-page long perfectly functional programs. Then the process people started demanding k-counts (lines of code) so I switched to macro assembly language and became the most productive programmer in our division.

        • Matt Belben says:

          Lisa_Hooker That’s the most Soviet thing I’ve heard in a while.

  13. Aussie Andy says:

    Great article, real economics,real life stories, nice change from the heavy fed & reserve bank numbers. I can get my head around these numbers

  14. Mean Chicken says:

    Getaround’s getup and go, got up and went?

  15. raxadian says:

    Why does Softbank invests in so many unicorns? How the hell are they making money? Or were making money before the quarantine?

    • c1ue says:

      Softbank was playing the mark to fantasy game.
      Take a startup that can kinda, sorta pretend to be successful be generating revenue. Throw in hundreds of millions to billions of dollars, thus pumping up its valuation. Repeat several times. Each subsequent round makes the previous round “profitable” even if the startup doesn’t actually work.
      This is exactly like housing in the runup to the 2008 GFC.

      • nick kelly says:

        One difference: everyone was in housing in 2007. From John and Mary to Goldman.
        Softbank was the ONLY major investor in Wework. It was the sucker who kept doubling down, all in expectation of the IPO, that would take Soft out.

        One prob: property leasing is several thousand years old. Buying big spaces and renting cubes is not exactly ‘tech’ or the next big thing. Soft could not get other big fish to believe.
        Even the spiritual pixie dust sprinkled by Adam (dried horse poop) couldn’t budge Goldie. knowing the product as they do.

    • lenert says:

      It’s not a real bank. It’s a soft bank, you see.

    • Wolf Richter says:

      SoftBank’s vision Fund lost nearly $17 billion in its last fiscal year ended March 31, 2020:

    • char says:

      The buckshot method of investment. Invest in all so you will invest in the winner and it will make up for all the failures.

      • WT Frogg says:


        That sounds a lot like ” we lose money on every unit we sell but we’ll make it up in volume.”

        Now where did I hear that before ???? Hmmm . ??

  16. c1ue says:

    I am much less sure about companies going with significant remote work.
    There are a lot of issues with that: including accountability, security, information exchange.
    Jobs which are largely independent – i.e. true contractor jobs, that I can see.
    Even disregarding ghosting…

    • Tony says:

      yeah, I agree. I work from home now and productivity has dropped. haha. There’s too many distractions at home. I’d also like to add that I do accounting. Also too….since everyone is working from…there should be tax deductions for this. We’re spending our electricity, utilities, etc to do the jobs from home. IRS needs to kick down those tax deductions. :)

  17. DR DOOM says:

    I don’t think the fed cares much for MBS, it’s soooooo 2009. Holders might have to eat this crap sandwich.

  18. NoFreeLunch says:

    Or, let’s think of an alternate end. The virus hangs around for a long time and social distancing in offices means more spread out (or everyone gets their own office rather than open plans), requiring more sqft for the same number of people. That extra space needed balances the lost space from more working at home so things are back in balance. Just a thought.

  19. LouisDeLaSmart says:

    Reading articles on this site feels like listening to a loudspeaker about how the Titanic is sinking, while being on the boat itself.
    The lifeboats have been deployed and the first class has boarded, thogether with their belongings. The ship is slowly sinking and water has flooded the lower decks. The systems are failing one by one. The water has reached the electric generators, but the crew is still managing to prevent catastrophic failure…I am not sure for how much longer. It is a good question as to how many lifevests are left after the first class grabed what they could? Not too many I suppose. The water is going to be cold for quite some time, as we have ventured too far north. There is a general unease amongst the passangers and crew. The music is still playing…

    • cienfuegos says:

      Good analogy.

    • Matt Belben says:

      A good analogy for our second Gilded Age. First class gets the lifeboats and go ahead and launch with like 11 people in a 65-person boat. Second class is kind of on their own. Third class gets locked below decks because everyone’s afraid they’ll rush the boat deck. Meanwhile the 200-man engine room crew make a heroic effort to keep the generators running and manage to keep the lights on until two minutes before the ship sinks, going down with her to a man.

      • VeryAmused says:

        I would suggest the second class has 15 people on a 10 man leaky lifeboat that was out for repairs, but the rest seems spot on.

  20. John says:

    Suspected this all along, collateral to splat- lateral.

  21. Leo says:

    As I read this article, ads for investing in commercial office real estate are displayed on the left side of the page, on the right side of the page and in several places in the middle of the article and the comments.

  22. David Hall says:

    Diamond Offshore (oil drilling) is bankrupt.

  23. timbers says:

    The internets say state and local governments can just declare bankruptcy like they’re suppose to so OmniCorp can buy them and become corporate property like in Robocop, but Carnival Cruise line got bailed out by the Fed.

    Plus all those peoples don’t really need their retirement. It’s their own fault after all.

    • MC01 says:

      Carnival wasn’t bailed out by the Fed or by Congress: it was bailed out by investors foolish enough to buy $4 billion worth of 3-year bonds paying a 12.5% coupon.
      It was also bailed out by other folks stupid enough to believe the “40% surge in advance booking” reported by some websites after misinterpreting (or downright falsifying) the booking website CruiseCompete, whose CEO was just reporting a massive shift from last-minute buying to long-term booking, a perfectly understandable development. As CruiseCompete also said, bookings year on year are 23% in total volume on their website.
      Stock market jockeys should have read the fine print.

      These folks will be taken to the cleaners as Carnival burns through around $800 million to stay afloat: they probably won’t declare bankruptcy but a default or a debt restructuring deal over the next year or two is extremely likely.

      Again: no need for the Fed to buy a single bond or stock certificate.

      • timbers says:

        What you said 1st paragraph…yes. But Fed “jawboning” caused that. It didn’t happen in a vacuum.

        And the jawboning is bad and misguided.

        We need reverse jawboning, and have for a very long time now.

        • MC01 says:

          The Fed has never promised to just buy junk bonds: they made a vague promise to buy “fallen angels”, meaning securities that had originally been investment rated but have since fallen into junk territory. And even then this downgrade had to happen after March 22 and the issuers have to be “fundamentally sound”, meaning otherwise viable companies that have seen their business ravaged by the crisis.
          And, worst yet, the SPV’s set up for the purpose are still to buy a single fallen angel. Their managers even snubbed Ford and Continental Resources, whose bonds fit the above criteria like a glove.

          If investors believed the Fed would just buy any junk bond their did not merely fall for jawboning: they were victims of an extreme case of selective deafness, meaning they only heard the words they wanted to hear and blocked off all the rest.

          The jawboning worked by propping up Continental Resources bonds: they went from 48 cents to the dollar on March 23 to the present 84 cents to the dollar, and without the Fed buying a single bond.
          But that’s what all central banks worldwide are now doing: they are trying to prevent some yields from exploding higher, at least until most of the world is in the recovery phase and damages can start to be assessed.

      • Jdog says:

        Sometimes you can chase yield all the way to the poor house…..

    • Bobber says:

      Why can’t states increase taxes on a temporary basis, which is the obvious response to a state revenue decline? Why are states so quick to ask for bailouts when they have taxing authority?

  24. Mike says:

    Thanks for the post. Do you see any opportunities to re-purpose formerly commercial space to residential space in the next 6-12 months? Is there any precedent for such a move in that kind of time frame?

    • Wolf Richter says:

      If I remember correctly, that was done in lower Manhattan, where they converted entire towers from office to residential. This was about 20 years ago when we lived in Manhattan. Not sure if this continued.

      Lots of industrial spaces, such as warehouses and manufacturing buildings, have been converted into lofts. This has been going on for decades, everywhere. Down the street from me, many years ago, the Del Monte Cannery (Fisherman’s Wharf) was converted into a luxury hotel, shops, restaurants, etc.

      Conversions are possible. The building has to be flexible enough, and nice enough, and be priced right, for it to work. But this takes a LONG time, including planning, permitting, rezoning, finding funding, etc. And I think your 6-12 months window is WAY too short.

      • Iamafan says:

        Brooklyn calls itself “gentrified”. I prefer to pinch my nose and move on to the country.

      • mr wake up says:

        Wolf – this did continue throughout the city as well and in addition most recently Governor Cuomo extended more protection to people living within commercial lofts under the “loft law”. Prior to this many landlords and many times tenants them selves but without the proper approvals and this moved from residential conversion with demand into alternative commercial conversions. Specifically throughout Brooklyn (search Industry city sunset park), Queens and the Bronx. There has been several years of bidding wars between institutional investors competing with self storage companies as well.

        Many multi story industrial buildings were converted into flex spaces repurposed into retail centers along with tech office spaces and still some light manufacturing occurring in the same buildings too.

        The local boards and the politicians alike have created many road blocks for the continued growth of these new centers of commerce and it will be very interesting to see how they resolve their difference after Covid-19 is done creating its long term damage on the market.

        I would assume they would make attempts to pass regulation for housing conversion although they would not make financial sense since the building costs (min $300sf for old decrepit multi story buildings) plus alteration costs.

        Ironically I know of one multi story industrial building purchased in Brooklyn with oil money from Texas looking to diversify and paid $425sf for a building 3 years ago that is still 100% vacant!

        Further it will not make financial sense because these residential conversions will be promoted only in the name of affordable, low income and shelter housing which none of this will make any sense strictly from a ROI perspective, so NYC has a oil tanker full of problems to resolve and most likely it will get worst since we have a never ending “them against us” and “us against them” campaign of tacky slogans that never resolve any real issues for “all” the citizens.

        Contextual Zoning regulations are very strict in NYC. We also have the highest cost of building in the world not solely because of labor or material but because we have the most complex and outdated DOB: Department of buildings structure.

        But on the flip side zoning laws allow a developer “as of right” to build. We have an industrial scenario previous 316,200sf M1-zone coca cola plant was sold to Home Depot for $63,000,000 in Aug 2017. The M1-1 zone allows the land owner as of right to build retail within this industrial zoning along with the entire sqft or 1 FAR (floor are ratio). In addition HD decided to build a 170,000 sf self storage component attached to the retail this is not as of right and they have to get local board approvals which created a new round of them against us/ us against them for small business in the area.

        So maybe we don’t have an oil tanker maybe we have several oil tankers full of problems sitting in the hudson river…

      • Mike says:

        Thanks for the reply and continued insights, Wolf.

  25. polistra says:

    Interesting conjunction of Softbank and fracking. Both crashes are caused by a change of Saudi policy.

  26. breamrod says:

    I think things return to normal faster than most people think. Why? because people want them to. The normalcy bias at work. Folks will wear masks and wash their hands a lot but want to get on with their life.

    • c1ue says:

      At least until the next nCOV spike happens in 2-3 months.
      There will be no normalcy until a vaccine is developed, tested and distributed.
      Or we use Medicare to protectively quarantine the most vulnerable (I.e. seniors) while delivering food and services.
      That is 0% chance of happening in the US

      • MC01 says:

        The OMS/WHO has been selling its soul to the Devil to convince us all about this terrifying “second wave” of new cases. They were also instrumental in helping Chinese authorities to cover up the Wuhan outbreak first and then to feed us false data.
        The German government believes in a long tail of isolated cases and localized outbreaks that can be managed with no new lockdows and without impacting the “return to normal” phase. They have also been very successful in managing the epidemic and their lockdown has been one of the shortest and less rigid in Europe.

        Personally I know who I am going to believe.

    • VeryAmused says:

      People wanted thing to return to normal at the start of the great depression.

      Reality is a harsh mistress.

  27. RD Blakeslee says:

    I was a patent examiner forty-five years ago and was detailed for awhile to the Commissioner’s office to work on office issues, the budget being one.

    One of the things I thought was that it didn’t make sense to use a couple of tons of steel and several gallons of gasoline to move a brain to paperwork, but telecommuting wasn’t practical yet because of the problem of accessing all the paper at a distance. Modern computer memory solved that problem and Patent Examiners have worked at home for some years now.

  28. Just not sure why a lot of these jobs haven’t been automated or outsourced to India.

    • Harrold says:

      India is not nearly as cheap as it was 20 years ago.

      Indonesia is now the cost leader.

      • Tony says:

        Have you. heard of Pakistan? They speak English there and they work real cheap.
        Credit card companies mostly use the Phillipines to answer calls. Why should any American sent home to work EXPECT THEIR JOB TO EXIST in a couple of years?
        Anything that is digitized can be done overseas, from robotic surgery, to accounting, to building permitting.
        Can’t wait for non-profits to be headquartered abroad.
        What will all the San Francisco Art Institute graduates do to pay off their student loans then?

        • Need an article on the shrinking global wage spread. The real reason Fed could inflate assets and not consumer prices. When that spread closes the size of their monetary largesse will be felt.

    • RD Blakeslee says:

      U.S. Patent examiners must be U.S. citizens, but there are now international patents which may be issued in any of the treaty signatory countries.

    • Jon says:

      I do work with India team a lot on daily basis
      The problem with india is extremely high attrition rate as well generally low productivity along with not able to bring on new ideas or implementations.

  29. Petunia says:

    Someone I know in Florida works for a large organization which sent hundreds of workers to work from home. They found that a large proportion of their workers, who make a median wage or less, didn’t have an internet connection at home. The organization was willing to give them a laptop, but the workers also didn’t have phones good enough to function as hot spots. Who knew, that for some people, $50 – $100 a month is a huge expense.

    • c1ue says:

      Sad but not surprising.
      What range was median wage?

      • Petunia says:

        I would estimate $35K-55K, with a few outliers on either side.

      • I know some minimum wage workers and they pay up for unlimited smart phones, pretty much out of necessity, for gig employment and networking. I also know people with high level jobs who don’t want to spend money on good computer service at home, after sitting in front of one all day. Your median wage is better than you imagine. For lower income these are must have.

    • Just Some Random Guy says:

      Doubt that is due to lack of affordability. Unlimited data plans are pretty cheap now. And so, lots of people, especially the yuuutes, use their phone for everything. They don’t have high speed at home because they don’t need it. Same with a land line or cable TV.

    • VeryAmused says:

      “Who knew, that for some people, $50 – $100 a month is a huge expense.”

      I assume this is sarcasm but if it is not I shall provide the answer…

      Anyone that is paying attention.

    • NewGuy says:

      Do these companies expect their employees to burn up their personal internet gigabytes for the sake of the company ?

      • Lisa_Hooker says:

        For the sake of keeping their job. Long ago my corp notified us the company would no longer pay for internet at home. If you wanted to work from home you had to assume the payments. Better than a 1 1/2 hour commute every day.

  30. joe says:

    Thanks Wolf. Very clear and simple description with facts. I wish the MSM had a clue about how to do that.

  31. Michael Engel says:

    1) Houston rent is a joke in comparison to a nice commercial space
    in the financial district near subway stations, buses, parking lots,
    Starbucks, Chipotle, restaurants, gyms….
    2) Suppose a tenant sign a lease for 20K/sq.ft commercial space, paying $60/sq.ft/Y, or $5/sq.ft/ a month.
    3) If the tenant skipped on paying rent for x3 months, he will get an invoice for :
    rent + 20% penalties, or $6/sq.ft/M x 20,000 = $120,000.
    4) Within x3 months the tenant accumulate : $360,000.
    5) This tenant let go number of employees, and the rest on furlough.
    6) Houston 1bdr goes for about $1,500- $2,000/M. High elevation areas, near a park, in Houston, a 2000sq.ft, 3bdr houses go for about $500K-$600K.
    7) When America open, businesses will use social distancing in
    their offices, according to an unwritten law.
    8) Lucky employees,working from home, on conference calls, will not
    get a dime, working from home. This business don’t need 20K sq.ft space.
    9) Both the landlord & his tenant have incentive to terminate the
    old lease and write a new one with few adjustments.

  32. Icanwalk says:


    Straight lines aside.

    Do you think we will look back at 2020 as the year that hell became a waypoint rather than the destination?

  33. Michael Engel says:

    10) The last thing a landlord need is another 20K/sq.ft empty space
    in his building. Landlord must keep whatever they got, before recession strike.
    11) When the occupation rate is falling below a red line, the building
    cannot not recover.
    12) That will be the fate of many malls.

  34. Iamafan says:

    Just ask the question already. Did the shut down just push us over the cliff? Was the shut down really necessary? Was it Constitutional? Tough questions.

    Now we have to live with its consequences.

    • Hopefully we live without the consequences. I consider the shutdown about 60/40 people vs government. Government came late to the problem. My local news did a poll last night, and 80% do not want to reopen. If you are in the 20% and you are blaming government, you are in good company. You are old enough to remember the Moral Majority? Neat concept, turns out it was a minority of conservative evangelicals. The counter point came when the status quo reclaimed the designation.

  35. Carlos Leiro says:

    I read in Yahoo Finance

    “Chesapeake Energy Extends Gains as Oil Recovers”

    They lie or have no idea of ​​the cost of shale oil

    • Wolf Richter says:

      “Chesapeake Energy Extends Gains as Oil Recovers”

      That’s an outdated article. CHK down 14% this morning, WTI down 21%. This shit moves fast.

      Agree with your last line.

  36. Just Some Random Guy says:

    Economy is back up and running this week in most places. All this will be forgotten in a few weeks.

    • VeryAmused says:

      You would definitely be very high in the running for the “Most Consistently Delusional Poster” prize.

      • Just Some Random Guy says:

        How many people were predicting Dow 10K a few weeks ago? And I’m the delusional one?

        • Wolf Richter says:

          Just Some Random Guy,

          You keep interchanging the Dow and the economy. They’re not the same thing.

        • VeryAmused says:

          Attempting to call the market in general is tricky to impossible let alone when the CBs are going cray cray daily.

          However, history shows that what is happening now smells a lot like a bull trap.

          Before this bear market is over Dow 10K is not crazy in the least.

          But believing this will all be forgotten in a few weeks…that is crazy.

    • WT Frogg says:

      Aren’t psychotropic drugs wonderful ?? ??

  37. polecat says:

    I think many of these fine commercial properties will look stunning with their future occupants living the real green new deal .. pumping those hydraulics as they plant strong roots in their formerly shiny hi-rise digs .. the hanging gardens of which will be found in any formerly bustling metropolis, as we puny humans fight each other with sticks-n-stones for a scrap of food!

  38. Wes says:

    Mr. Richter: Here’s how the Financial Accounting Standards Board looks at valuation. Pay special attention to FASB 157 which sets out the rules for valuation starting in 2007. Is what we’re seeing today just a coincidence, I think not!

  39. Michael Engel says:

    Check Dallas Fed TX mfg activity and outlook survey

  40. Tony says:

    I’m stepping up to the plate and am willing to buy 55 Green after it defaults. A group 20 friends and associates and I can each bid $10,000 down, therefore we are offering one million for the building.
    I’m sure we’ll be able to get a loan for the rest. Just think of the cool live work studios we can make the building into!

  41. El Katz says:

    A relative of mine works for an engineering company. They are all working from home. In one of their teleconferencing sessions, the topic was raised regarding ways to cut expenses. One of the suggestions was giving up the fancy offices as many of the functions can be done remotely and those that can’t, can always be done from a hotel conference room or renting a temporary office facility.

    This is in Texas.

    Anecdotal, but evidence of a trend just the same.

  42. Paul m Whalen says:

    I’ve been a commercial mortgage banker for 40 years. If you think IT hammered retail, take a good look at office buildings. No more file cabinets; law libraries, etc. The average space occupied by an office employee is now about 150 square feet, down from 250 in the mid 1990’s. This means every building built in the suburbs is functionally obsolete- under parked for the number of employees in the building. Most were built with 4 spaces for each 1,000 feet of floor area. So now, the buildings can’t get more than 70%+/- occupied, which is insufficient to cover operating expenses and the mortgage. Most downtown buildings have even lower parking ratios. The entire asset class isn’t overbuilt, it’s under demolished. That’s the only way out.

  43. Jeff says:

    Seems like most everybody is in favor of “work from home”, so let me throw in a couple of contrarian points.

    I’m retired middle-management from the drug research business. As my group did mostly IT type stuff, to oversimplify it was typical modern cube-farm work. Typically I’d have a group of about a dozen staff reporting to me, ranging from near-entry-level data entry up to people with 20 or more years of experience in Biostatistics or Database Management.

    As a people manager, there will be people whom you feel can work from home and people who either aren’t experienced enough to do that, or worse, aren’t responsible enough. It’s that last point that is the strongest impediment to work-from-home for many. I’ve had to deal with employees that were working from home, yet weren’t at their desk when I tried to reach them. If you’re their manager, how much of that will you tolerate?

    Also, those experienced folks are how the new folks learn the ins-and-outs of the job. That knowledge transfer just doesn’t work well remotely, as much of it is on the fly and during casual conversations. Sure, everybody can have a chat window open while they’re working remote, but new folks are always reluctant to type out a question that may make them appear to be uninformed, uneducated, etc.

    And if you’re so eager to move your job to a work-from-home setup, what’s to keep the company from just moving all of it to India? I’m always surprised to find out how many people think they’re indispensable, because typically management doesn’t feel the same way.

    I just don’t think we’re going to see a huge change in the percentages of on site vs work-from-home, but I feel fortunate to be at a place where I can just sit back and watch and not go through it…

    • Work@Home says:

      “I could’nt reach my slave/employee 24/7/365 when he/she worked from home’

      Well let’s see the response. As my fellow IT bud’s used to say “I’m not interrupt driven”, well now with everybody glued to their mobile tracking device, I’m sure they answer even when they’re at the pub ( working ) or SF coffee shop.

      Manager’s have long had this problem. It was quickly realized with desk-top computers that managers would just look to see they were ‘logged-in’ and ergo ‘working’, so we computer geeks would just leave our desktop on&logged 24/7, problem solved.

      Managers that don’t know what’s going on are the problem. You either can manage/know results weekly or you can’t.

      As somebody who worked corporate when young, and then went ‘solo’ and then started my own corporation, I would say I didn’t enjoy working at home, I quickly got my ‘own office’ outside of the house, just so I could suit-up and change environment, and then return ‘home’ and switch context.

      My relatives with kids who work at home seem to only get work done when the kids are sleeping. Which probably explains why lots of ‘work@home’ folks aren’t answering the phone 24/7.

      Biggest problem I found with ‘management’ is that most managers that got promoted to such couldn’t ‘do’, and the people could do, did get stuff done, but had no interest in management. Managers tended to spend all their time in ‘meetings’, while engineers spent all their time ‘creating’ aka ‘doing’, making stuff, fixing things. Contributing. Managers spend all their time in meetings ‘pontificating’, but I found mostly taking the credit of other peoples work.

      There is no solution, other than starting your own company and keeping far away from lowest common denominator, aka corporate hierarchy.

      Most places let PHD people work 50% on their own stuff, and 50% on company stuff, if people aren’t 100% obsessed with ‘working’ during their sleeping hours, you don’t hire them.

      If your biz is hiring double-digit IQ employees, then you should do what everybody has done, farm it out to India or China, or Mexico.

  44. Michael Engel says:

    1) Let people go. Cut bonuses, dividends & executives options. Pay 60%-80% of the previous salary to employees on furlough. Cut travel expenses, especially international flights + hotels + meals. Settle with the landlord.
    2) Using employees apartments or houses, for free, without paying them rent, will reduce the need for office space.
    3) Since its becoming difficult to supervise employees, they will become piece work contractors.
    4) Cut, cut, cut. After letting employees go, putting the leftover on furlough, cutting cubicles, finance debt at zero rates, HR will be last to get a cut after doing a great job.

  45. Michael Engel says:

    In some expensive building in NYC, upstairs, not on street level retail, a 100 to 150 sq.ft can add $20K to the cost of employee.

  46. Super well written! – Have read that text a few times. Well made!

  47. Rubicon says:

    What a remarkable crash you depict, Wolf!

    It appears these young tech boys, who bought into these glitzy office sites didn’t even realize how the bigger fish, CMBS’s would far outlast their own starry-eyed business motives.
    Moreover, what they failed to comprehend was how an economy as frail as the US, could cause them to lose it all when unexpected hard times hit them; ie a Pandemic.
    Better to use common sense in picking work spaces that can withstand “the test of time.”

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