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‘Zombie Offices’ Spell Trouble for Some Banks - The New York Times
(www.nytimes.com)
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this post was submitted on 09 Feb 2024
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Justifying the rental expense doesn't really make sense, because they end up paying more in utilities in addition to the rent. If you're still on the hook for a lease and have most employees WFH, just downsize when the lease ends or move everything remote if possible.
Seems like banks are worried about the loan holders defaulting and are pushing companies to bring employees back to bring up demand for commercial real estate?
these leases are like 10 to 30 years, its not like a yearly one.
I'm aware, but that doesn't negate my point. The tenant company still has to pay more in utilities and such to bring people back to the office. Whether they pay that cost for 10, 20, however many years is extraneous.
A lot of larger citys will also have things on the books (not sure if it will effect commercial zoned buildings) but if they are empty they will be charged much higher tax rates. And also if you turn on the lights in a place its normally the whole area is turned on. So if they get 3 people to come in they are spending the same power that a full office would need (assuming they have workstations there) if not then they need to wait till the contract they have allows for some sort not full payout with other penalties (which when you see a biz go under the lease holder will be part of the creditors that get money well before employees).
Why would anybody get into an unbreakable office lease of 10 years? Let alone 30.
You have never leased out a office building I can see. If you area going to spend 100,000's even into more to make the office space (as you build to suit inside the space as well) you wanna know you have it for so long. So it was good for biz as they knew they would have it for a decade maybe more and protect the investment. And it would also lock in the rent rates for that time so they could stave off inflating rents (there is a normally a year over year % increases built into the lease so the company that owns the building doesnt loose out too bad).
It was also something that C levels were spending their money on, they would own the property company and get even more out of it. They could spend a ton with a bank with the thought of I can assure you biz X (which they are on the board of if not the CEO outright) will be there for this many years and will pay the principal of the loan over this time, we also built space for other offices inside the building and we will give a discount to anyone that used or is referred by your bank. Again stacking security onto the loan they got, plus more to put on a plate of a potential biz start up.