30% of U.S. office buildings, valued at $1.1T, are obsolete

[C.]

Originally Posted by Crawford

I think it's far more likely that those 80's-era sprawl office parks are finished. They were already obsolete pre-pandemic. Now you need a nice, central, amenity-filled office environment. Some highway-adjacent 1980-era lowrise structure doesn't cut it.

My wife's firm, which was mostly in shitty sprawl office buildings, is ending its leases in these buildings and consolidating in higher end, more central buildings.

Exactly! And these shitty office parks are prime candidate to be redeveloped into a better street grid with much needed housing/mixed-use spaces.

[SAN Man]

Originally Posted by Emprise du Lion

Built in 1986, 909 Chestnut boasts 1.4 million sq ft of space. Deal after deal has fallen through. Current estimates place the buildings value at only $9.2 million. A 95% decline in value since the building was last sold in 2006.

$9.2 million for a 1.4 million sq ft. skyscraper?! $6.50/square foot. A typical mid century ranch house here goes for about $700/square foot. Something must be really wrong with the building. How can something like that sit around for that long at that price?

[Steely Dan]

Originally Posted by C.

This is melodramatic. It's not that companies are nefariously leaving downtown for the suburbs. It's that there is a shift in demand. Key points from both articles below:

*the rise of hybrid work schedules over the past two years has office users rethinking their needs, either by shrinking their footprint or trading up into new spaces more enticing to workers.

*Additionally, government energy efficiency standards (in the U.K.) are getting stricter, but so are tenant demands for healthier and more energy-efficient office environments, the pandemic helped accelerate the demand for better office space.

*Tenants are willing to pay a premium for healthier, more energy efficient spaces.

*Older buildings that don't get renovated or modernized lose out. Newer Class-A office towers downtown are seen as more attractive.

*Older buildings will need to be sold at prices low enough to justify the capital improvements necessary to bring them up to the energy efficiency and health standards of the near future.

On the last point, the wave of coming commercial defaults will be very bad news for real estate speculators, but it will eventually be a good thing for newer, smaller businesses looking for space. With the debt service wiped out, the older buildings can be leased at lower rates. It becomes an affordable option for the downtown market. Additionally, I'm reminded of Jane Jacob's observing the need for older buildings in the Death and Life of the Great American City. Older buildings tend to be less expensive to lease then their modern counterparts, leading to new energy and ideas that would not have been able to happen if everything was high rent.

spot on post.


also, i think some of the doomsayers should take this quote from the article to heart:

“We’re not saying bulldozers are arriving en masse,” Zisler said. “But you’re going to see a repricing and, in some cases, reuse of these buildings.”

which has always been the case for big 100 year old dinosaur buildings like these. WFH/hybrid is just suppressing values enough at the moment such that it is accelerating the process for some of them that have recently lost big tenants to brand new class A space elsewhere downtown.

that is absolutely a bad thing for the owners of those buildings, but overall, downtown itself is not dying, or being set back 3 decades, or whatever.

[lio45]

Originally Posted by SAN Man

$9.2 million for a 1.4 million sq ft. skyscraper?! $6.50/square foot. A typical mid century ranch house here goes for about $700/square foot. Something must be really wrong with the building. How can something like that sit around for that long at that price?

Some things are indeed wrong with the building:

- It's not in San Diego;
- It apparently has no or little parking;
- It's vacant;
- It can't be easily converted to residential.

It's unbelievably attainable for such a huge building (it would be by far my flagship building if I bought it ), but the math definitely wouldn't work.

(That cool building that's East St. Louis' tallest would be even easier to acquire, but then again, it would also be a money pit and ruinous idea.)

[iheartthed]

Originally Posted by Crawford

I think it's far more likely that those 80's-era sprawl office parks are finished. They were already obsolete pre-pandemic. Now you need a nice, central, amenity-filled office environment. Some highway-adjacent 1980-era lowrise structure doesn't cut it.

My wife's firm, which was mostly in shitty sprawl office buildings, is ending its leases in these buildings and consolidating in higher end, more central buildings.

Yep. This was already a trend pre-pandemic, and I don't see why it's not going to continue post-pandemic.

Originally Posted by pdxtex

^^^^^Its like the introverts revolt. 10 years from now companies returning downtown will be regarded as heroes saving our beleaguered cities. Its going to be like Detroit all over again, when GM moved downtown out of guilt and the rest of SE Michigan followed.

I don't really think of GM as a downtown Detroit pioneer. GM has been in Detroit since the company moved there from Flint in the 1920s. The more pivotal move was Compuware, which really was a suburban based company that moved downtown. And, for as much damage as he did, Mike Ilitch moving Little Caesars downtown was definitely going against the grain.

[bnk]

Originally Posted by SAN Man

$9.2 million for a 1.4 million sq ft. skyscraper?! $6.50/square foot. A typical mid century ranch house here goes for about $700/square foot. Something must be really wrong with the building. How can something like that sit around for that long at that price?

If I had the money I would turn it into a 1.4 million sq ft second or third home.

The Ultimate pied de terre. Could pimp it out for another 20 million? or a lot more if you want to go grande.

[pdxtex]

Originally Posted by C.

This is melodramatic. It's not that companies are nefariously leaving downtown for the suburbs. It's that there is a shift in demand. Key points from both articles below:

*the rise of hybrid work schedules over the past two years has office users rethinking their needs, either by shrinking their footprint or trading up into new spaces more enticing to workers.

*Additionally, government energy efficiency standards (in the U.K.) are getting stricter, but so are tenant demands for healthier and more energy-efficient office environments, the pandemic helped accelerate the demand for better office space.

*Tenants are willing to pay a premium for healthier, more energy efficient spaces.

*Older buildings that don't get renovated or modernized lose out. Newer Class-A office towers downtown are seen as more attractive.

*Older buildings will need to be sold at prices low enough to justify the capital improvements necessary to bring them up to the energy efficiency and health standards of the near future.

On the last point, the wave of coming commercial defaults will be very bad news for real estate speculators, but it will eventually be a good thing for newer, smaller businesses looking for space. With the debt service wiped out, the older buildings can be leased at lower rates. It becomes an affordable option for the downtown market. Additionally, I'm reminded of Jane Jacob's observing the need for older buildings in the Death and Life of the Great American City. Older buildings tend to be less expensive to lease then their modern counterparts, leading to new energy and ideas that would not have been able to happen if everything was high rent.

You should come to Portland then. Smaller cbds are going to get raked over the coals. They estimate only 30 percent of workers have returned downtown. Residual retail has had the atom bomb go off though. Downtown retail near all these empty skyscrapers is a complete ghost town, vacancy after vacancy. Not temporarily shuttered, just gone.

[mrnyc]

Originally Posted by bnk

If I had the money I would turn it into a 1.4 million sq ft second or third home.

The Ultimate pied de terre. Could pimp it out for another 20 million? or a lot more if you want to go grande.

that's the way to go these days.

at least for lower than class A office spaces.

if not a palace, then at least into apts.

ie., a ny developer is converting this vacant ohio bell office bldg in cleveland into apts.

more:
https://www.cleveland.com/realestate...partments.html

[mhays]

Originally Posted by pdxtex

You should come to Portland then. Smaller cbds are going to get raked over the coals. They estimate only 30 percent of workers have returned downtown. Residual retail has had the atom bomb go off though. Downtown retail near all these empty skyscrapers is a complete ghost town, vacancy after vacancy. Not temporarily shuttered, just gone.

The thread is about the post-COVID world. You're talking about temporary conditions during COVID.

As for those office buildings getting devalued, yes some owners will lose. But it's possible to retrofit most buildings. Buyers will buy on the cheap and do fine. Or the current owners will bite the bullet and retrofit despite the paper losses. Some will bet that COVID-era ideas about wide hallways and frequent air changes will be temporary, and that their rents will come back without major work.

[dchan]

Originally Posted by mrnyc

that's the way to go these days.

at least for lower than class A office spaces.

if not a palace, then at least into apts.

ie., a ny developer is converting this vacant ohio bell office bldg in cleveland into apts.

more:
https://www.cleveland.com/realestate...partments.html

As another person mentioned, it's not that easy to convert office space to residential. Residential "living" spaces require a certain amount of light and air based current residential building codes, something that is difficult to acquire in certain office buildings. Some office buildings are comprised of curtain wall with no operable windows (thus, no "air").

But in most cases, it would be the "light" component that would be difficult to attain. Have you ever noticed why older apartment buildings tend to be built in a weird H or I shape? It's because the living spaces (living rooms, bedrooms) in each apartment must have access to a certain amount of light and air (see the I shaped building 2nd from the bottom right).



Office buildings do not have these requirements (with mechanical ventilation to providing the air). Therefore, only the apartments along the window perimeters would have meet the "light" requirement. Any space in the middle would technically be illegal, unless the local DOB issues some sort of code variance. Newer codes might allow tubular daylight devices and constant mechanical ventilation in lieu of operable windows, but the tubular daylight devices might be tricky to install throughout a commercial office building to provide enough light to the apartments around the core.

[Steely Dan]

Originally Posted by dchan

As another person mentioned, it's not that easy to convert office space to residential. Residential "living" spaces require a certain amount of light and air based current residential building codes, something that is difficult to acquire in certain office buildings. Some office buildings are comprised of curtain wall with no operable windows (thus, no "air").

there are ways around these things though.

a decade or so ago, the top 10 floors of this old mid-century office beast in chicago were converted to residential.

the results might look wonky AF, but they made it work somehow. so it can be done.

btw, the building footprint on this one is roughly 355' x 128', so it's pretty damn thick.


55 E Monroe:


source: https://www.skyscrapercenter.com/bui...t-monroe/14135




and several years prior, the old HQ tower of defunct Montgomery Ward was entirely converted to residential.

though with a footprint of only 234' x 88', it's conversion was probably simpler given the much skinnier floorplate depth.


The Montgomery:


source: https://www.skyscrapercenter.com/bui...ntgomery/10312

[C.]

Originally Posted by pdxtex

You should come to Portland then. Smaller cbds are going to get raked over the coals. They estimate only 30 percent of workers have returned downtown. Residual retail has had the atom bomb go off though. Downtown retail near all these empty skyscrapers is a complete ghost town, vacancy after vacancy. Not temporarily shuttered, just gone.

What's your point?

Every city in the country has seen a hit to their commercial/retail markets due to the pandemic. Some cities with strong economies have already recovered. Others are struggling and may have to rethink the amount of land they dedicate exclusively to commercial uses.

WFH was always here, but it definitely has been given a boost in the pandemic as it proved that some jobs can be done just as good if not better at home. If Portland does not have the population base to adapt to the new normal, then maybe the city should revisit its zoning policies to encourage new residential development downtown and the conversion of existing underutilized office buildings to residential, where appropriate.

For what it's worth, New York's Financial District pre-9/11 was not very active after hours. After 9/11 there was a chance to remake the neighborhood. A lot of new residential developments along with some conversions of older offices into wicked living spaces. New York FiDi is now a thriving neighborhood, stronger and more vibrant than before. If NYC can recover after 9/11, I'm sure Portland will eventually recovery from the pandemic too. Cities are here to stay.

[austlar1]

Obsolete office buildings are a thing in downtown areas across the country. In cities with vibrant economies, most will likely be recycled in some fashion. The same thing is highly unlikely for obsolete office building strung out along major freeways, something that is especially common in Dallas and Houston. There are millions of square feet of office space in corridors such as Houston's Katy Freeway (IH10) or Dallas's North Central Expressway. There are plenty of other examples in both metro areas as well as in a host of cities throughout the US. It's hard to imagine these buildings being re-purposed on a large scale.

[bnk]

Originally Posted by Steely Dan

there are ways around these things though.

a decade or so ago, the top 10 floors of this old mid-century office beast in chicago were converted to residential.

the results might look wonky AF, but they made it work somehow. so it can be done.

btw, the building footprint on this one is roughly 355' x 128', so it's pretty damn thick.


55 E Monroe:


source: https://www.skyscrapercenter.com/bui...t-monroe/14135
v
v]

In the first page of this thread I mentioned the Monroe.

https://lucidrealty.com/park_monroe.php

https://lucidrealty.com/images/park_.../plan_4601.gif

https://lucidrealty.com/images/park_.../plan_4812.gif

https://lucidrealty.com/images/park_monroe/plan_07.gif





https://www.zillow.com/b/55-e-monroe...ago-il-9RwmvG/

388K for this one.

Great views

[iheartthed]

Originally Posted by C.

What's your point?

Every city in the country has seen a hit to their commercial/retail markets due to the pandemic. Some cities with strong economies have already recovered. Others are struggling and may have to rethink the amount of land they dedicate exclusively to commercial uses.

WFH was always here, but it definitely has been given a boost in the pandemic as it proved that some jobs can be done just as good if not better at home. If Portland does not have the population base to adapt to the new normal, then maybe the city should revisit its zoning policies to encourage new residential development downtown and the conversion of existing underutilized office buildings to residential, where appropriate.

For what it's worth, New York's Financial District pre-9/11 was not very active after hours. After 9/11 there was a chance to remake the neighborhood. A lot of new residential developments along with some conversions of older offices into wicked living spaces. New York FiDi is now a thriving neighborhood, stronger and more vibrant than before. If NYC can recover after 9/11, I'm sure Portland will eventually recovery from the pandemic too. Cities are here to stay.

Superstorm Sandy as well. Superstorm Sandy should've been gameover for FiDi due to exposing how vulnerable that area is to rising sea levels. But within a year FiDi was stronger than ever.

[SIGSEGV]

I live in a condo in a converted office building (but from 1910, so no huge floorplates), and conversions of old office buildings to residental or hotels have been happening for a while, presumably during office bust cycles.

I suspect what makes the most sense is to convert the oldest buildings first, which would reduce the total amount of office space and make some of those behemoths most attractive. This building, for example, would make fine residences: https://www.google.com/maps/@41.8820...7i16384!8i8192

[Steely Dan]

Originally Posted by SIGSEGV

(but from 1910, so no huge floorplates)

they didn't all have small floorplates back then

i mean, this mammoth land monster from 1912 takes up an entire half city block!


175 W Jackson | 1912 | 1.4M SF


source: https://www.chicagobusiness.com/arti...ffice-building


however, i believe 175 W Jackson has two large light wells punched through it, so it's probably not super infeasible to convert it.

but you'd likely end up with A LOT of "light well-only" units on the interior, which would no doubt be much harder to sell/rent.

[mhays]

Thick floorplates CAN work with residential, like those giant floorplans linked above, but rents/prices won't value the deep-interior space very much. Most people won't pay enough for those extra "family rooms" and multi-door or unenclosed third bedrooms to make them worthwhile.

Offices do value that space.

[jmecklenborg]

I have only worked at home 20~ days since the beginning of the pandemic, most of that being during a lengthy car repair.

The anti-office people are just plain wrong. Unless you're off in some corner of the business dedicated to a single IT project with 3-4 other people, the benefits to everyone being at the same place are massive.

Just today I've had 10+ brief conversations with people in other departments that wouldn't have happened if we were all at home. The controller, a purchasing guy, the new head of plant operations, two customer service workers, a couple guys in the warehouse, etc. I met with a guy at noon who drove three hours to be here - do you think we're going to go with his quote or the other company who never sent someone over here, even though they're local?

[TWAK]

Who wouldn't want to live in a tower that used to be an office? I would! It would sure help some of CA's housing problems.