Die! suburban office parks

As someone who got to see the real estate bust of 1982 up close, I hold a very jaundiced view of the petty real estate speculators and hold a much lower opinion of the the bankers who fund their crazy schemes. Let me explain.

I was living in St. Paul at the time and had been personally involved in a scheme to help restore a gracious old neighborhood by rebuilding a turn-of the century four-unit rowhouse that was vacant and near collapse. I learned a very great deal from that experience about how the "value" of property rises and falls as dictated by political, social, and economic conditions that had very little to do with the intrinsic value of the dwelling itself.

For example, because this was originally a Victorian neighborhood, the perceived value of the real estate was based on how many folks could be persuaded that such a style was sophisticated, trendy, and just plain cool beyond words.  Problem here! Victorian houses originally went out of style for some very good reasons—the best of which is that they are a maintenance nightmare and were designed to run with live-in servants.  So even though a well-maintained Victorian house could be featured in movies and commercials as the perfect embodiment of homeyness, the fact is the owner better get a lot of thumbs-up in life to justify the insane costs of owning one.

Even though the denizens of Cathedral Hill would talk of the need to preserve historically significant neighborhoods and saving an architectural heritage, at the base, they were buying aesthetics.  Now I can go on for hours about how aesthetics is arguably the most important consideration in economics, but what it means in practice is that housing is also part of the fashion industry—and there is NO accounting for taste.

But while it was enjoyable to learn aesthetics from some neighbors with especially refined taste, the lessons learned from the bankers were no fun at all.  I discovered that it was an occupation utterly driven by emulation.  The way bankers reduce their personal risk is to do exactly the same thing as everyone else in the business. The old Soviet Politburo was not nearly so homogenous.  Obviously we were not going to restore an ugly slum to its former glory until bankers got involved, and they had decided as a group to redline the whole area.  At one point we actually threatened one banker with a sit-in (this was 1976) if he refused to stop redlining.  He actually caved to political and social pressure yet in the process became a local hero who also got very wealthy because he essentially underwrote what became one of the most desirable neighborhoods in Minnesota.  They probably still run tour busses on pretty summer days.

Encountering such relentless herd mentality actually unnerved me.  I suppose it should not have—after all, I grew up in a country that worshipped many forms of herd mentality—most especially in pop culture.  Start a trend and you will become rich!  Somehow, I just assumed that when grown-ups had to make grown-up decisions, they were going to be a little more nuanced than wondering if something will ever become "cool."

Some of the other things I learned from the bankers are covered in the article below which points to the economic absurdity of the seemingly endless miles of suburban office parks that surround most USA cities.  These buildings are not especially ugly but they are unimaginative and usually festooned with aggressive signs attempting to fill them up with paying tenants.  If you wonder whose business they are attempting to attract, you are hardly alone.  Turns out there is not nearly the demand necessary to fill those white elephants.  So why were they built?

The simple answer is, "When lenders lend, builders build."  So when the loan committees decided (at roughly the same time) that their banks should lend to suburban office developers, suddenly there were many such projects.  And since their herd mentality meant that a lot of lending committees were looking at the same data which projected a demand for such projects, a lot of these schemes got green-lighted.  There actually may have been enough demand for one or two such office parks but when twenty lenders, looking at the same data, fund a couple of projects EACH...  About three years later, there is a glut of new and usually expensive offices and those demand projections have vanished into the air.  It is as predictable as dawn.  And if it isn't suburban office parks, it is high-end residential developments, or downtown office space, or urban condos, or etc.

Because of my experiences with bankers who cannot even organize something as simple as real estate development, I tend to believe that they are absolutely unqualified to advise societies on more complex economic matters.  And if you think I overstate things here, just listen when the big banksters testify before congressional committees and then ask yourself, Why should anyone give these buffoons the ability to determine the future development of a nation?  Of course the answer is, they should not.

Those Sprawling Office Parks You Drive By On Your Way Into The City Are Now Being Abandoned

ROB WILE DEC. 9, 2013

You know all those office parks or towers you pass in certain cities on the way in from the suburbs?

There is a pretty good chance they are now completely abandoned.

In a recent feature called "Suburban Corporate Wasteland," NPR's Connecticut affiliate discusses how the state is now dotted with massive white elephants, the shells of a multi-decade boom in mega office parks.

Pfizer's sprawling, 160-acre research park in Groton, for instance, is now in the process of being torn down. The town of Ridgefield had to purchase the former 40-acre Schlumberger-Doll research center after it sat vacant for five years; it's now being sold off piece by piece. And officials in Simsbury are now debating what to do about a 173-acre site formerly owned by The Hartford.

Connecticut is not the only site of this phenomenon. Nationwide, the suburban office vacancy rate is 16.6%, compared with the downtown rate of 12.4%, according to CBRE. Elk Grove Village outside Chicago must now grapple with a 60-acre site formerly owned by United Airlines after the company moved its offices to Chicago. AT&T and Motorola have likewise left nearby suburbs with similar dilemmas after they moved into city limits, according to the Chicago Sun-Times.

Aaron Renn at the Urbanophile identifies several reasons behind this phenomenon:

• The massive post-war migration waves from the inner city to the suburbs have stopped, and in many cases are now reversing. You can also see this in lack of new growth in vehicle miles traveled.
• Relatedly, it's now actually cool — and safe — to be downtown again. Much of the new crop of tech dynamos are actually in San Francisco instead of the surrounding valley, Amazon has a huge new campus in Seattle, and the aforementioned Chicagoland firms are retreating from the Interstate back into city limits. 
• M&A and corporate restructuring and downsizing have wiped out mid-sized firms.
• People don't work like they used to. Firms have realized that "people who don’t get out and engage with the world around them end up cut off from information flows, leaving them a step behind." Suburban office parks are also quite expensive.

"Put it all together and it’s clear office space demand is weaker than it used to be," Renn writes. "Joel Kotkin recently surveyed the same trends and suggests that the US may have hit 'peak office'."

It wasn't even fun while it lasted. more