CRE vet says 30% of office buildings are 'basically worth nothing'
fortune.com
fortune.com
Someone still needs to buy the land and then pay out of pocket for the demolition and remediation costs.
I.e. they rather have someplace empty than rent it out at the still quite high market rate.
There has to be some don't ask don't tell policy going with the banks for that to work?
Now you and I, we're all about the cash flow. But there are serious accounting complications when the balance sheet changes.
Plus it's not a good look to reassess asset values up and down all the time (it's a red flag to the tax man) so its better off trying to get a long-term view, not a short term one.
But to answer your question, no occupancy is not generally a factor when considering a buildings value. It's too volatile to be a useful input against a long-term asset.
A property can take a loan based on their balance sheet asset value which is based on the rent price, if those rents are too expensive for the market and keep the building mostly unoccupied it means that the asset value is inflated, since it cannot achieve its supposedly sheet value as the rent is not attractive and won't generate cash flow, if/when the building as an asset is sold the buyer will want to have it to generate cash flow and that requires renting out as much as possible for the higher amount possible, so at some point the whole charade just implodes?
Wrapping my head around financial tricks is quite hard sometimes, some of it just feels like smoke-and-mirrors way too detached from reality. Is it because it's mostly purely quantitative rather than qualitative in the 2020s?
But buildings are not revalued all the time. They typically revalue when they change hands. You might have it revalued (up) if you want to get a bigger loan, but it's not like the bank is running around revaluing buildings in case they went down. (It's not good for them to acknowledge it's underwater either.)
Both parties are optimizing for the _long game_. If the market is in a short-term slump (think < 5 years) then it pays the bank to wait for a recovery, and it pays the company to hang on.
Yes, if done at scale, across an industry, then the wheels can come off in a big way (as happened in 2008) but for short term fluctuations there's a polite understanding that it's in everyone's interest to carry on through the downswing into the next upswing.
Imagine having that instead of some aweful looking building built in the 1970s.
As a kid growing up in a very small town, my grandmother use to tell me how she would walk a mile to the train station and ride up to Hartford during the Great Depression. All those train tracks are gone now.
It is hard to think we could have had a great rail system that was fast and efficient in this country.
Edit: how do I save/favorite this? Only way I can do it is by flagging it currently :/
We get screwed when we have no real leverage to increase income. You can grow it somewhat by job hopping, but even that has limits as you age. Even if you save and invest, divorce and medical bankruptcy will fuck you over.
Office buildings and housing blocks are designed differently.
The developer would likely want to remove alternate non load bearing floor|ceilings to optimise for automated farm tray stacking heights.
There are several modular designs that can be fitted into large open spaces ~two story clearance.
eg: https://www.foodmanufacture.co.uk/Article/2024/02/20/jones-f...
The questions then are why are V-Farms profitable in some locations and not others, where are the locations with cheap enough energy that can compete on local area transportation costs against salad and table vegetable farmers with higher transport issues, etc.
FWiW I agree that back fitting V-Farms into vacant "designed for office use" isn't likely to be profitable, they're better with (see link) open greenfield warehouse spaces with loading docks and a clean slate to optimise layout for tray handling, lifting machines, etc.
Ergo five V-Farms, of which three are likely profitable.
If you're going for low hanging snark at least learn to parse English and math a bit.
I like the low hanging snark joke, goes well with the subject matter at hand!
Edit: Just read the article. Nice PR piece for two vertical farm companies. All that articles contains is claims from the founders and their companies, nothing else. Could be ripped straight of the company websites. Also, 3.6 acres... that is nothing.
It certainly can be done - given many have been done, but it's not at all a given it'll be cheaper for all properties vs. tearing it down (which would still keep the utilities to the property, of course) and starting over.
To be honest, if these growing clubs could cover rent + electricity + water in my opinion it is not really that bad of an idea to take over empty office buildings, most legal cannabis is already grown in very controlled environments, open plan offices would be pretty good for it.