This all has to do with how commercial real estate is valued; rent determines the valuation. If companies are unwilling to pay the rent the space sits empty waiting for a tenant willing to.
The reason for this is if you take lower rent than previously your building value changes and your lenders make you cough up the difference to cover additional principal.
Since the loans come due every 5ish years we’re now seeing buildings unable to justify their previous value, and having to walk away or get valued at their current rent.
It’s going to be ugly for a while.
xbmcuser 4 days ago [-]
A lot of real estate commercial or residential is left vacant in many cities around the world because of this. Add to the fact that property taxes are directly tied to the tax income of city governments there are few cities willing to do something about it. Even the banks don't want to touch it as if the market crashes they will also get over leveraged. Now we have a large amount of empty and unused real estate and large number of unable to afford rent on houses or businesses.
bruce511 4 days ago [-]
This is undoubtedly correct for commercial, but I think not so much for residential.
Partly because only investors care about rental returns (people buying houses to live in won't be getting rent.) And partly because residential rent demand remains strong, even as commercial rent is weaker.
Where there might be cross-over is less with houses and more with large apartment blocks with a single owner. In that specific case it's probably better to keep rent high, especially if the building wants to maintain an aura of exclusivity.
For housing generally there's no need to refinance every 5 years so the need to revalue doesn't come up. And unless a revalue happened soon after a purchase the house is unlikely to be underwater anyway. Residential prices (excluding large scale external events like 2008) are not volatile and trend steadily upwards.
Ultimately the root fundamentals of commercial and residential real estate are quite different.
neom 3 days ago [-]
There are ghost floors in condo buildings in Toronto. Like really. I've seen it, a whole floor. Family office would fly to Canada, buy floors of buildings, leave. The government finally banned this, but the empty units still exist.
xbmcuser 3 days ago [-]
Its not just family offices. Billions of dollars from proceeds of corruption and crime from developing world and poor countries is parked in the real estate of western cities. But western governments turn a blind eye as this allows their 3 letter agencies to control corrupt foreign officials.
bboygravity 3 days ago [-]
For the lesser informed: family office is like a hedge fund but with less regulation.
3 days ago [-]
dylan604 4 days ago [-]
I moved a company out of a high rise. The company was a media post type company in a building full of financial and lawyer types. After the company moved, the 8600+ sqft of office space remained vacant for at least 4 years. After that, life moved on and I didn't spend much time in that area any more to see how long it stayed empty. There was a pub that was next door, and at night the empty space had the security lights on that allowed seeing into the space to see in that it looked exactly how it looked when we left. It became a running joke each time I went to the pub to see the exact same bit of armored cable hanging from the ceiling where the tiles were never put back in place. I just assumed it was more valuable as a loss for a write off since 8600 * >$30/sqft seems like a lot of money to not be made.
CydeWeys 4 days ago [-]
> I just assumed it was more valuable as a loss for a write off since 8600 * >$30/sqft seems like a lot of money to not be made.
That's not how it works. You don't get to write off foregone rent as a loss, only the actual cost of running/maintaining the building.
The guy you replied to had it right; accepting a cheaper rent would cause the building's value to plummet (buildings are valued as a multiple of rents), which would plunge the owners into bankruptcy as they would now owe more than the building is worth. But you can survive a temporary market downturn by never accepting a lower rent so long as it comes back up in time.
The whole thing is silly, and the market is rife for a saner way to valuate properties. Personally I would use a decay factor on top of the last paid rent for vacant properties. E.g. the imputed rent for a vacant lease would decrease by 2% every month (this figure is open to fine-tuning), so that the property is worth less and less with every month that it cannot find a new tenant at its previous rent. Then, when a new actual rent is established and is being paid, you use that figure.
mikhailfranco 3 days ago [-]
Agree with your micro analysis.
I also think in the current macroeconomic climate, CRE owners, and their banks/hedgies/reits or other bond/loan owners are crossing their fingers, turning a blind-eye to the telescope, holding their breath, and waiting for the Fed to lower interest rates.
Of course, if the Fed holds higher-for-longer (as many expect in the face of continuing high inflation), they will be waiting to exhale to the point of asphyxiation.
How did CRE go completely bankrupt? "Slowly, then suddenly."
pas 3 days ago [-]
It would be prudent for the Fed and various market/banking authorities to start poking this as soon as possible.
Either via commercial-to-residential conversion grants, or providing targeted restructuring loans to owners, and owners/managers should start offering the vacant space for free for non-commercial stuff.
Vacancy is bad for cities and bad for inflation.
Sure, maybe it's politically unfeasible, but still, turning up vacancy taxes would motivate commercial landlords to finally stop this wile-e-coyote running-in-the-air.
stale2002 4 days ago [-]
> But you can survive a temporary market downturn by never accepting a lower rent so long as it comes back up in time.
> The whole thing is silly, and the market is rife for a saner way to valuate properties.
That is not really how property valuation works.
A building is not worth whatever a mathematical formula outputs. Instead a building, or anything at all, is worth exactly how much other people are willing to pay for it. No more, no less.
Presumably, any prospective buyer who isn't stupid would be very much aware of the concept of a cyclical market, and they wouldn't change how much they valued a building just because the owner stupidly didn't rent it out during a downturn.
> Then, when a new actual rent is established and is being paid, you use that figure.
Nothing is stopping someone from simply doing that, and offering to buy the property for whatever this "better" formula outputs. And if this new formula is actually correct, then presumably such a person would be able to make tons of money from doing that.
CydeWeys 3 days ago [-]
> Instead a building, or anything at all, is worth exactly how much other people are willing to pay for it. No more, no less.
The point you're missing is that buildings need valuations much more frequently than they are sold. CRE is generally mortgaged to the maximum extent possible (to use maximum leverage), and those mortgages need frequent re-upping as the commercial real estate market does not work like residential where you can get a 30-year fixed. So the property needs to be constantly valuated so that the banks know how much equity the owners have in the building (and if the loans are underwater), and this is being done constantly, way more frequently than the individual building is actually sold. The most common way to do this is to look at the price the building was last sold for, see how rents have changed since then, and use that as a modifier on the last sold price. (Or just a flat multiplier on top of total rents.)
4 days ago [-]
dylan604 4 days ago [-]
I wasn't trying to state that my assumptions were right. Just adding some color to the story.
I am fully aware that the $/sqft wasn't negotiable. That's why we left. On top of not budging on the rent, they were also not providing any of these other incentives/perks to make it worth while.
Having the space occupied because you gave enough incentives to equate to lower rent on the renter's books vs vacant and visibly demolished has got to be better in justifying the $/sqft. Then again, I'm not in real estate and am okay with my soul that this doesn't make sense to me.
refulgentis 4 days ago [-]
(earnest voice, not scoffing)
How would that differ from the status quo? In both cases, the rent accepted is lower and the new valuation is based on it? Except now you can't defer pain at all?
glompers 4 days ago [-]
Might differ in the way that it plays out across an entire regional office market. If deferring pain is no longer expected or even possible, then the market price should rise and fall to find the right price with fewer impediments to the local activities of commerce.
CydeWeys 3 days ago [-]
It would encourage buildings to lower asking rents as vacancy periods grow longer, rather than having incentives to leave a commercial unit vacant, as with my proposal they'd already be taking a hit to valuation anyway as soon as the unit went vacant, and a new tenant paying 80% of the last tenant's rent is still much better than leaving it vacant longer while it decays through 70%, then 60%, etc.
So overall the market would be more efficient, rents would go downwards more quickly in terms of CRE downturns, and you'd have fewer vacancies with more units reaching a market-clearing rate.
VHRanger 4 days ago [-]
Understanding this structure clarifies commercial rent negotiations for business owners:
The landlord can't negotiate on rent, but he can negotiate on a ton of other things that are financially equivalent.
wrs 4 days ago [-]
Indeed, it’s even common to negotiate for some months of discounted (or zero) rent, as long as you don’t change the official rent!
blackeyeblitzar 4 days ago [-]
Isn’t this deceptive? If a buyer thinks they’re getting a priority with one kind of rent potential but the truth is that there’s a lot of these negotiations that distort things, couldn’t they be fraudulent?
Also how does property tax get affected by all this?
lotsofpulp 4 days ago [-]
Free rent doesn’t fool a lender or commercial property buyer. It’s elementary to take annual income and divide by 12 to get actual monthly rents. Appraisals for property tax are similarly unaffected.
“Free” months are to prevent advertised rents from being lower to prospective and current tenants. It helps set a higher price anchor so that future negotiations are based off of that.
bruce511 4 days ago [-]
It's also an important offset against the cost of moving.
Obviously norms in different places will vary.
We have not moved a lot as a business, but when we have it's been -expensive-. Leaving aside the cost of actual movers (reasonably low) it costs money to prepare a new office for us.
Granted, we place a premium on employee comfort, so we spend a bit on kitchens etc, but also networking, furniture, the offices themselves and so on.
Then there's down-time for the move itself (packing, moving, unpacking.)
And "rent overlap". Once construction starts we're effectively renting 2 offices, the old one and the new one. In cases where serious work was done this can span 2 to 3 months.
So we've always negotiated "rent free" starter months. This mitigates (some of) the extra expenses incurred. In some cases this translates as discounts for the first year or whatever.
wrs 3 days ago [-]
Speaking of construction, another thing that might be surprising is the “tenant improvement allowance”. If your lease is long enough (at least 5-7 years), it’s often expected that the landlord will pay to hire an architect, rip out whatever interior the previous tenant had, and build out the interior to your specs. (Up to some limit, which is the “allowance”). But again, that isn’t counted as a rent discount.
In the other direction, there’s the whole area of “net” rent (and “triple-net” rent), and the bizarre calculation for shared spaces that makes “square foot” a semi-imaginary unit.
CydeWeys 4 days ago [-]
You have to look at the actual income statements to see how much they're actually being paid in a year, and look at the signed leases to see how much the building will actually make in future years. It's all part of due diligence for buying a high value commercial property.
pfannkuchen 4 days ago [-]
I thought that was about rent control?
3 days ago [-]
Waterluvian 4 days ago [-]
Ah this clarifies why I’ve had an employer talk about “millions in free upgrades” for office space they looked at.
quickthrowman 3 days ago [-]
‘Tenant improvement allowance’ is what that is called.
Your employer’s facilities director/real estate person is a bit naive if they claimed it’s free money since it’s not free money. The TIA cost is just priced into the 10 year lease over the duration. Nothing is free.
Waterluvian 3 days ago [-]
Nothing is free?!
quickthrowman 3 days ago [-]
Not if a landlord is involved :) I do business with CBRE, JLL, and Cushman Wakefield. All of them make me pay them a fee to send them an invoice, and that fee is built into my price since as I’ve said,
rdtsc 4 days ago [-]
That's how it works. We signed a new agreement but to be "convinced" to stay the lender did some renovation in the space, added some extra amenities, new carpet everywhere, and a bunch of other stuff like that.
lotsofpulp 4 days ago [-]
> The reason for this is if you take lower rent than previously your building value changes and your lenders make you cough up the difference to cover additional principal.
A good portion of loans (I would even say most, especially for CMBS) come with minimum DSCR requirements, so not having any rental income for too long can be worse than having less income.
There's a shopping center on Geary that has a Domino's, a Walgreens, a former Ross, and a former Blockbuster. It still has the slot for dropping off movies.
fy20 4 days ago [-]
This is pretty apparent in UK high streets too.
Whenever I visit my parents, the high street of their local town feels dead compared to when I was a kid. 100 years ago this town was the trade capital of the region.
Half the shops are boarded up, and whatever is left feels like it's running on limited time. Banks make up a good chunk of units, and they still only exist as my parents' generation don't do online banking.
When I was a kid it would be common to see vans (food trucks) selling locally produced meats, pastries, cheese, bread, etc. Last time I visited there was only one, selling vapes.
In bigger cities it's not uncommon for areas near high streets to be redeveloped into mixed used, with commercial on the ground floor and apartments above. I'm guessing in 20 or 30 years the concept of a 'high street' I knew as a kid will only exist as a tourist destination.
This has an issue in itself though, as a lot of these are are historic buildings. You are restricted to what changes can be done, and as-is they wouldn't make very good apartments (low ceilings, weird layouts, poor insulation/sound proofing, questionable fire safety, no parking).
anal_reactor 4 days ago [-]
Honestly, I go to local market maybe once a year. As lovely as they are, I just can't adjust my life to the rhythm of those small shops, supermarkets are way too convenient.
Besides that, I don't really have a reason to go cafes or bars. Spend an hour of my day to have 10% chance of talking to someone and then again 10% of actually enjoying the conversation? No thank you, especially not after an exhausting work week. I'd rather put my coffee into a thermos and drink it on a bench in a park outside the city. Or at home. God I love drinking at home.
KptMarchewa 3 days ago [-]
Pretty much no one goes there alone. If you go with someone else you have 100% chance of conversation and much higher at enjoying it.
anal_reactor 3 days ago [-]
I can't ever imagine this. Every single time I went somewhere with someone my entire attention was dedicated exclusively to that person.
ben_jones 4 days ago [-]
> It’s going to be ugly for a while.
As a life long Bay Area resident I’ve gotta assume 10 years+ before non tech businesses find some casus belli to operate the ex-warehouse converted to open office buildings throughout SF.
I say non tech because if you’re a burgeoning tech company why on gods green earth would you choose SF? Because you want to poach all the ex-googlers at 300k+ TC expectations? Because you want to compete with Meta for Stanford and Berkeley grads (because they truly are so much better than all the other CS grads in the world)? Because you’re really really trying to nail down that contract with Kaiser Permensorrythreemonthsuntilyourappointmente? Because it’s the only way you can raise $100m on a $5b valuation for your macaroni and cheese only microwave?
SF is a gorgeous amazing city with a rich history and jaw dropping views and weather (bring a jacket) but man even as a major proponent I can’t make a business case outside of checks notes access to League of Legends themed investor meetings.
wbl 4 days ago [-]
Because you've got to take care of your sick mother was very famously a reason. But there's an more serious reason: you can hire an incredible depth of experts here you can't anywhere else, who are immersed in informal networks that diffuse innovation.
Why do hedge funds pick Manhattan? Why are all the watchmakers in Jura? Why are biotech firms in Boston and New Jersey? Why are all the US car companies in Detroit? The answer is thick hiring markets and agglomerative efficiencies. Top people don't sell equities in Dallas.
ben_jones 4 days ago [-]
> Because you've got to take care of your sick mother was very famously a reason.
With aging parents I empathize a lot with this appreciate you raising it. It’s true the locals will have many reasons to be here and will continue to start businesses and enterprises here.
> you can hire an incredible depth of experts here you can't anywhere else
I’d argue that there are a lot of bad institutional habits in the Bay with regards to software and business management such that the benefit of domain expertise is caught in a nuclear blast of bad “leadership” and dumb capital.
kolbe 4 days ago [-]
Covid diffused a massive number of those experts throughout the world.
vel0city 4 days ago [-]
You probably could have picked a different city than Dallas, as Dallas actually has a decently large financial sector. It has historically been a pretty big part of the financial industry of the Southwest US buoyed by the Federal Reserve presense and within the last few years has had some massive growth by many big banking and finance groups. Its the second biggest financial area behind NY in the US.
"The industry’s rapid Texas expansion since the onset of the pandemic means the area now has more finance workers than Chicago or Los Angeles, trailing only New York."
That's interesting; I'd thought Charlotte was the #2 financial center after NYC. Perhaps by the total market cap headquartered there (given Bank of America and other large banks)?
Regardless, the fact that there are multiple such large centers is a good thing.
nocoiner 3 days ago [-]
I think it was a reference to Liar’s Poker.
vel0city 1 days ago [-]
Thanks for cluing me in to the reference; I did totally miss that one.
Still, the world is a much different place in 2024 than in 1989.
TMWNN 2 days ago [-]
"Equities in Dallas" being a Liar's Poker reference that vel0city didn't recognize doesn't affect the validity of the comment, specifically "Its the second biggest financial area behind NY in the US".
seanmcdirmid 4 days ago [-]
What other options do you have? All cities have the same issue to lesser degree: Seattle is a bit cheaper than SF but also maybe has a bit less talent, Portland is cheaper still than Seattle with less talent still. Unless you are a FAANG who can convince people to relocate to Durham for a bit lesser pay, it’s going to tough going trying to recruit the right talent in that LCOL even though compensation is less.
You are stuck making trade offs wherever you base your office, the market remains sort of efficient like that. If you have the network to hire the right talent in say Atlanta, go for it. But many will still do better in SF.
rufus_foreman 4 days ago [-]
>> What other options do you have?
100 other metro areas in the US and 5 other continents.
seanmcdirmid 4 days ago [-]
All with different trade offs to be made.
photonbeam 4 days ago [-]
These companies have been importing people from all over the US (and elsewhere) to the bay area. Its not efficient at all
seanmcdirmid 4 days ago [-]
Yes, but not just from one singular location they could go instead. It isn’t easy setting up in Shanghai and Bangalore.
ben_jones 4 days ago [-]
> What other options do you have?
Many companies are plopping offices right next to university clusters, which is a good solution if you need both talent and cost efficiencies. Consider the research Triangle in North Carolina as one example.
It’s probably shorter to just say SFs appeal is largely to fresh grads who want to party in a city and industry consolidation - both the consolidation of actual tech companies and the financial services that service them, like VCs. SF does not have any monopoly on fresh grads and no longer represents a disproportionate consolidation of the tech industry which is now very spread out.
> You are stuck making trade offs wherever you base your office, the market remains sort of efficient like that.
Absolutely there are tradeoffs. I believe people are struggling to realize the entrepreneurial tradeoffs of SF have changed (as much as I don’t want them to as a local resident), and now disproportionately encourage cynicism - oh wait AI will turn everything around never mind.
seanmcdirmid 4 days ago [-]
Ya, you know 25 or so years ago, SF wasn’t the place to do tech, that was more mid and South Bay. Then it was for awhile, and maybe it isn’t going to be much of a place for it again.
I really wish the techs would fully embrace remote work and then just equalize pay already. You can work and live where you want, although you might not get paid enough to live in SF, but it’s your choice and problem.
ikiris 4 days ago [-]
They are embracing equal pay, by massive layoff waves.
fortran77 4 days ago [-]
Sunnyvale, Mountain View, San Jose, Cupertino, Santa Clara
jonnycoder 4 days ago [-]
SF is far from an “amazing” city. From Gdansk to Bangalore to NYC to Amsterdam, and many others, I put SF at the bottom of my list. And I love cooler weather.
jareklupinski 4 days ago [-]
> non tech businesses find some casus belli to operate the ex-warehouse converted to open office buildings throughout SF
> SF is a gorgeous amazing city with a rich history and jaw dropping views and weather (bring a jacket)
sounds like you want to convert those warehouses into hotels and start a tourism-focused industry
karma_pharmer 3 days ago [-]
because they truly are so much better than all the other CS grads in the world
Well they kinda are. And most of them want to stay in the Bay Area, so you don't end up randomly losing a bunch of your potential "excellent match" candidates because of geographical preference. There are only two other schools in that tier; a lot of MIT grads want to stay on the East Coast.
Carnegie Mellon grads are the recruitment secret superpower though: they all want to get the hell out of yinzburgh as quickly as possible -- anywhere on earth is an improvement. Crazy smart too, especially the ones who do programming languages and compilers.
Yeul 3 days ago [-]
I see this in my own country. Amsterdam is expensive why not go to the countryside? Where it that easy.
Restaurants, clubs, drug dealers, ordering your coffee at Starbucks in English not Dutch- all the things you want as a high rising young urban professional is in the city. So if you actually want to attract this talent you cough up the ridiculous amount of money for the privilege of the city.
CalRobert 3 days ago [-]
It's nice to be near other immigrants too. It's harder to get to know people with entrenched friend networks, and the Dutch aren't known for being easy to befriend.
fshbbdssbbgdd 4 days ago [-]
Many execs believe that people are more productive when you can supervise them in the office. Given that, it would follow that you have to care about being where the talent is.
4 days ago [-]
mitthrowaway2 3 days ago [-]
There ought to be a law that the rental valuation drops by 1% for every month that the space remains without a tenant.
shellfishgene 3 days ago [-]
How does a rent of zero for years not change the valuation?
bequanna 3 days ago [-]
Because the banks are in on the scam.
They have to be or they would be forced to report huge losses from marking down loans. Can’t have that screwing up the exec bonuses. Best to let the next guy deal with it, or heck, maybe they will get lucky and the market will turn around!
“Extend and pretend”
4 days ago [-]
bitcharmer 3 days ago [-]
> It’s going to be ugly for a while
Why are we calling it ugly?
nullc 4 days ago [-]
Came here to say this-- and to also point out that if you look through loop at SF real-estate you will see lots of stuff at $/sqft that just don't make sense in the current market.
kdamica 4 days ago [-]
I worked on the 4th and 5th floor of this building for a few years, and there’s no reason why would want this building at a time when there is plenty of space on the market. The bottom floors were designed to be a 1970s data center, and so the city block sized floors only have windows on only one side. So during the winter months when it gets dark early, you might not see sunlight on weekdays except during your morning commute.
The plus side of this building is that it is one of, if not the most, seismically safe building in the city. So if you’re optimizing for that, you can probably get a great deal right now.
lchengify 3 days ago [-]
I used to use the WeWork on the bottom floor (technically partial basement). This is definitely the vibe: Huge open floor, no windows. WeWork did an OK job trying to light it but, I could never shake the feeling that it felt like a scene from Fallout.
My two cents: If this building ever becomes popular again, it'll be because of the location and not because of the building itself. It's reasonably close both to "Van Mission" (the rebranding of that part of Market Street for high rise residential), a BART stop, and Hayes Valley. It's probably one good Twitter-esque city tax subsidy away from being fully occupied in 5 years.
phendrenad2 3 days ago [-]
> 1970s data center
Off-topic but: That's something I'd really, really like to see.
fragmede 3 days ago [-]
check out the computer history museum in mountain view, they have one
flomo 4 days ago [-]
Also, SF MTA and CTA have/had offices there, so it could be convenient to negotiate with local officials. But yeah, it was originally a BoFA IT bunker, never intended to be a nice building.
SeanAnderson 4 days ago [-]
HPP (Hudson Pacific Properties, mentioned in the article) is the largest commercial real estate owner in the bay area.
I spent some time there. The Uber and Block offices are beautiful, as is Twitter's up the street. Unfortunately, the street is meth hell even before night hits.
The city granted nice discounts for the CEOs to take the spots when rents were up, but now that COVID cratered the commercial real estate market and it still hasn't recovered, there is little office space demand for such a scary stretch.
echelon 4 days ago [-]
> The Uber and Block offices are beautiful,
Square put a lot of work into this building. They installed a massive stadium staircase between three floors.
They've also shuttered one of their multi-floor offices in Atlanta before engineers even got the chance to use the new spaces.
austin-cheney 4 days ago [-]
Curiously, how is Uber still in business? After losing tens of billions every single year they finally had their first year of profit at a whopping 1.83 million.
How can they possibly recover the near 100 billion they sunk on growth?
bcherny 4 days ago [-]
My understanding is that PnL doesn't tell the whole story for a capital-intensive business like Uber. Instead, you want to break it down by city -- for a mature market like SF, I'd expect a healthy profit margin; but for a new city that Uber entered recently, I'd expect it to be a loss for a few years as upfront investments in marketing, ground team, recruiting, etc. take time to pay off.
What would be a bad sign is if Uber continues to lose money, even in its most mature markets.
lchengify 4 days ago [-]
This is correct. For the most part, you are taking the money from your profit centers to invest in new initiatives. Could be geo's, could also be verticals, etc.
This is not at all unusual for a company where the top line is growing. As a point of comparison, Amazon was founded in 1994 and not profitable until 2003.
lotsofpulp 4 days ago [-]
Difference with Amazon is the barrier to entry to creating a worldwide distribution business is far, far greater than creating a ride hailing app. Amazon was losing money to invest in valuable real estate and buildings and other big ticket capital items that retain worth, whereas Uber is basically giving away subsidized rides hoping that people will pay more in the future.
jjmarr 4 days ago [-]
I spoke with an Uber driver about this recently, and one of Uber's barriers to entry is their phenomenal data on roads. As an example, they know for every apartment complex, where you'd drive around inside to drop off food as oftentimes you can't just go to the front. Or which parts of a road have no stopping zones along with the schedules. Bus stops too. And the app will guide you to get a pickup where the Uber driver is actually allowed to stop.
Drivers are interested in those features because it makes them more efficient. And having a critical mass of drivers is what makes it possible to get a ride in a few minutes. There are other upstarts, but they don't have many drivers, and your potential user market doesn't scale linearly with drivers because nobody wants to wait 30 minutes to get a ride (even with crazy discounts).
blendergeek 3 days ago [-]
I am an Uber driver. I'm sure they have the things you describe in some places. Where I am, the app regularly tells me to drive off the side of a bridge because it believes there is an at-grade intersection in a highway. Despite my repeated reports of the issue, it persists. All the Uber maps in my area are at least 1-2 years out of date and are nearly useless for navigation. I pretty much ignore them a lot of the time.
vel0city 4 days ago [-]
This was one of my experiences with Uber versus some other ride hailing apps. The Uber app seemed to understand the airport and would help guide me towards a pickup zone and help me relay to the driver what pickup zone I was going to be at, while at least last time I used them other ride hailing apps tended to just try and show wherever I was at the time.
lchengify 3 days ago [-]
Amazon and Uber are definitely different, but in 2003 Amazon's market cap was about $21B, or ~$36B in today's dollars. Uber is actually bigger than that in value today (~$144.11B).
Amazon was far from a dominant player in 2003, and AWS wasn't launched publicly until 2006.
From a product standpoint, as others have stated, Uber is a real-time services marketplace vs Amazon which is more about physical goods (again, excluding AWS, which is technically a service). Most of their value is putting all the work into the ground to keep the marketplace balanced, which is a tricky marketing and econometrics problem. One need not look farther than Lyft to see how hard it is to keep the "5 minutes away or less" guarantee.
Also to those who think the app is a non-trivial technical achievement, I would recommend reading some of the blog posts that go into some of the crazy technical challenges they hit [1]. Specifically in some cases, in order to make the app work in all geo's, they ran up against practical limits to binary size at Apple. Not to mention that geo / waypoint data is a genuine "big-data" problem and not easily reproduced by just any company.
However, I would not want to own a lot of Uber shares with the way FSD is progressing since v12.
TheSpiceIsLife 4 days ago [-]
What makes Uber capital intensive?
I would have thought something like a steel mill would be capital intensive, Uber less so.
karagenit 4 days ago [-]
Arguably because it’s a two sided marketplace (matching drivers to riders) the network effect is very strong, so to have any success you have to dump a ton of money into marketing to gain enough users to make the app viable.
Cacti 4 days ago [-]
Because they’re burning money.
jameshart 4 days ago [-]
"marketing, ground team, recruiting" aren't capital though?
metaphor 4 days ago [-]
> ...they finally had their first year of profit at a whopping 1.83 million.
It's almost as if your reference was generated by some half-baked AI bot that doesn't know how to contextually interpret comma/period numerical delimiters in financial statements of US companies.
From authoritative source[1], Uber's 2023 bottom line reads $1.887 billion.
All that debt was converted to common stock. It doesn’t need to be paid back.
gigel82 4 days ago [-]
Now that they almost completely eliminated the competition (by "disrupting" the market with magic money) and have locked in customers, they can begin the 2nd phase, which is jacking up the prices. Classic techno-feudalism.
pas 3 days ago [-]
that sets them up for "disruption". as Uber and Lyft trained users to be happy to download an app to get better prices an N+1. "ridesharing" company can enter the market anytime (for example Bolt or Cabify)
ilrwbwrkhv 4 days ago [-]
Why do they need to recover anything? The whole market runs on foogazi. Marc Anderson's favorite founder is Adam Neumann.
blackeyeblitzar 4 days ago [-]
To be fair Adam Neumann is impressive. I recommend watching interviews with him to get a better sense of him. WeWork may not be a great business but I also doubt whether most people are capable of getting it to where it is.
nextworddev 4 days ago [-]
Many people in large cities spend $300+ per month on Uber instead of owning a car etc
oivey 4 days ago [-]
They have to make money on those rides for that to be a plus.
fragmede 3 days ago [-]
which, between get payments, insurance, and registration, that isn't that bad a trade off.
chrisjj 3 days ago [-]
The don't need to recover it. It was investment, not borrowing.
fblp 3 days ago [-]
A subtext of this is how much the Canadian pension fun lost out.
Hudson Pacific bought the property in 2010 for $93.0 million [1].
The Canadian pension fund bought a 45% stake for $219 million, and Hudson Pacific kept the remaining 55% [2]. So that equivalent $486 million ($474/sqft) valuation was a 5.2x return in 5 years...
Hudson buys that 45% stake back for $43.5 million in 2024, an equivalent valuation of ~$96million or a 1/5th of the prior valuation. The article states that it's because the pension fund "weren’t willing to put any more capital in”.
The SF city is paying $40/sqft for 157,000 sqft, yet 1,025,833sqft the building was valued at building [1] at the equivalent of $94/sqft in that transaction.
Meanwhile, the other building mentioned in that article sold for $72/sqft... so I guess the pension fund didn't do too bad...
Headline modified to fit. Original: "One of S.F.'s biggest office buildings sees value plunge by 80% after departure of Uber, Block"
yazzku 4 days ago [-]
Many stores seem to be closing in the bay area in general. Not uncommon to see shops you used to know boarded up and for lease.
duskwuff 4 days ago [-]
This was an office building, not a shop.
dylan604 4 days ago [-]
So? The comment just expands the state of default in the area in broader terms that follows this article. If all of the workers from buildings like this disappear, it follows that the customers would also disappear for the shops in the area. That is proven by comments like this to show the theory has merit.
Nuzzerino 3 days ago [-]
Yeah I sensed a bit of emotion in the previous comment.
junon 3 days ago [-]
Anyone have an archive link that works? SF chronicle refuses to let you use the site with an ad blocker.
chrisjj 3 days ago [-]
And falsely claims this vanilla Android Chrome has an adblocker. Odd.
4 days ago [-]
xyst 4 days ago [-]
Single zoned commercial is on its way out. Mixed use is in.
Unfortunately the common person today won’t take advantage. Only the rich will be able to reap the benefits.
At least future generations will have a place to live if this trend continues. Hopefully something that is affordable on UBI if the “AI revolution” really takes off
Grimburger 4 days ago [-]
> Unfortunately the common person today won’t take advantage. Only the rich will be able to reap the benefits.
All supply helps the common person whether they can afford it or not, people pull out this trope all the time and it's completely wrong.
The reason for this is if you take lower rent than previously your building value changes and your lenders make you cough up the difference to cover additional principal.
Since the loans come due every 5ish years we’re now seeing buildings unable to justify their previous value, and having to walk away or get valued at their current rent.
It’s going to be ugly for a while.
Partly because only investors care about rental returns (people buying houses to live in won't be getting rent.) And partly because residential rent demand remains strong, even as commercial rent is weaker.
Where there might be cross-over is less with houses and more with large apartment blocks with a single owner. In that specific case it's probably better to keep rent high, especially if the building wants to maintain an aura of exclusivity.
For housing generally there's no need to refinance every 5 years so the need to revalue doesn't come up. And unless a revalue happened soon after a purchase the house is unlikely to be underwater anyway. Residential prices (excluding large scale external events like 2008) are not volatile and trend steadily upwards.
Ultimately the root fundamentals of commercial and residential real estate are quite different.
That's not how it works. You don't get to write off foregone rent as a loss, only the actual cost of running/maintaining the building.
The guy you replied to had it right; accepting a cheaper rent would cause the building's value to plummet (buildings are valued as a multiple of rents), which would plunge the owners into bankruptcy as they would now owe more than the building is worth. But you can survive a temporary market downturn by never accepting a lower rent so long as it comes back up in time.
The whole thing is silly, and the market is rife for a saner way to valuate properties. Personally I would use a decay factor on top of the last paid rent for vacant properties. E.g. the imputed rent for a vacant lease would decrease by 2% every month (this figure is open to fine-tuning), so that the property is worth less and less with every month that it cannot find a new tenant at its previous rent. Then, when a new actual rent is established and is being paid, you use that figure.
I also think in the current macroeconomic climate, CRE owners, and their banks/hedgies/reits or other bond/loan owners are crossing their fingers, turning a blind-eye to the telescope, holding their breath, and waiting for the Fed to lower interest rates.
Of course, if the Fed holds higher-for-longer (as many expect in the face of continuing high inflation), they will be waiting to exhale to the point of asphyxiation.
How did CRE go completely bankrupt? "Slowly, then suddenly."
Either via commercial-to-residential conversion grants, or providing targeted restructuring loans to owners, and owners/managers should start offering the vacant space for free for non-commercial stuff.
Vacancy is bad for cities and bad for inflation.
Sure, maybe it's politically unfeasible, but still, turning up vacancy taxes would motivate commercial landlords to finally stop this wile-e-coyote running-in-the-air.
> The whole thing is silly, and the market is rife for a saner way to valuate properties.
That is not really how property valuation works.
A building is not worth whatever a mathematical formula outputs. Instead a building, or anything at all, is worth exactly how much other people are willing to pay for it. No more, no less.
Presumably, any prospective buyer who isn't stupid would be very much aware of the concept of a cyclical market, and they wouldn't change how much they valued a building just because the owner stupidly didn't rent it out during a downturn.
> Then, when a new actual rent is established and is being paid, you use that figure.
Nothing is stopping someone from simply doing that, and offering to buy the property for whatever this "better" formula outputs. And if this new formula is actually correct, then presumably such a person would be able to make tons of money from doing that.
The point you're missing is that buildings need valuations much more frequently than they are sold. CRE is generally mortgaged to the maximum extent possible (to use maximum leverage), and those mortgages need frequent re-upping as the commercial real estate market does not work like residential where you can get a 30-year fixed. So the property needs to be constantly valuated so that the banks know how much equity the owners have in the building (and if the loans are underwater), and this is being done constantly, way more frequently than the individual building is actually sold. The most common way to do this is to look at the price the building was last sold for, see how rents have changed since then, and use that as a modifier on the last sold price. (Or just a flat multiplier on top of total rents.)
I am fully aware that the $/sqft wasn't negotiable. That's why we left. On top of not budging on the rent, they were also not providing any of these other incentives/perks to make it worth while.
Having the space occupied because you gave enough incentives to equate to lower rent on the renter's books vs vacant and visibly demolished has got to be better in justifying the $/sqft. Then again, I'm not in real estate and am okay with my soul that this doesn't make sense to me.
How would that differ from the status quo? In both cases, the rent accepted is lower and the new valuation is based on it? Except now you can't defer pain at all?
So overall the market would be more efficient, rents would go downwards more quickly in terms of CRE downturns, and you'd have fewer vacancies with more units reaching a market-clearing rate.
The landlord can't negotiate on rent, but he can negotiate on a ton of other things that are financially equivalent.
Also how does property tax get affected by all this?
“Free” months are to prevent advertised rents from being lower to prospective and current tenants. It helps set a higher price anchor so that future negotiations are based off of that.
Obviously norms in different places will vary.
We have not moved a lot as a business, but when we have it's been -expensive-. Leaving aside the cost of actual movers (reasonably low) it costs money to prepare a new office for us.
Granted, we place a premium on employee comfort, so we spend a bit on kitchens etc, but also networking, furniture, the offices themselves and so on.
Then there's down-time for the move itself (packing, moving, unpacking.)
And "rent overlap". Once construction starts we're effectively renting 2 offices, the old one and the new one. In cases where serious work was done this can span 2 to 3 months.
So we've always negotiated "rent free" starter months. This mitigates (some of) the extra expenses incurred. In some cases this translates as discounts for the first year or whatever.
In the other direction, there’s the whole area of “net” rent (and “triple-net” rent), and the bizarre calculation for shared spaces that makes “square foot” a semi-imaginary unit.
Your employer’s facilities director/real estate person is a bit naive if they claimed it’s free money since it’s not free money. The TIA cost is just priced into the 10 year lease over the duration. Nothing is free.
A good portion of loans (I would even say most, especially for CMBS) come with minimum DSCR requirements, so not having any rental income for too long can be worse than having less income.
https://www.investopedia.com/terms/d/dscr.asp
Whenever I visit my parents, the high street of their local town feels dead compared to when I was a kid. 100 years ago this town was the trade capital of the region.
Half the shops are boarded up, and whatever is left feels like it's running on limited time. Banks make up a good chunk of units, and they still only exist as my parents' generation don't do online banking.
When I was a kid it would be common to see vans (food trucks) selling locally produced meats, pastries, cheese, bread, etc. Last time I visited there was only one, selling vapes.
In bigger cities it's not uncommon for areas near high streets to be redeveloped into mixed used, with commercial on the ground floor and apartments above. I'm guessing in 20 or 30 years the concept of a 'high street' I knew as a kid will only exist as a tourist destination.
This has an issue in itself though, as a lot of these are are historic buildings. You are restricted to what changes can be done, and as-is they wouldn't make very good apartments (low ceilings, weird layouts, poor insulation/sound proofing, questionable fire safety, no parking).
Besides that, I don't really have a reason to go cafes or bars. Spend an hour of my day to have 10% chance of talking to someone and then again 10% of actually enjoying the conversation? No thank you, especially not after an exhausting work week. I'd rather put my coffee into a thermos and drink it on a bench in a park outside the city. Or at home. God I love drinking at home.
As a life long Bay Area resident I’ve gotta assume 10 years+ before non tech businesses find some casus belli to operate the ex-warehouse converted to open office buildings throughout SF.
I say non tech because if you’re a burgeoning tech company why on gods green earth would you choose SF? Because you want to poach all the ex-googlers at 300k+ TC expectations? Because you want to compete with Meta for Stanford and Berkeley grads (because they truly are so much better than all the other CS grads in the world)? Because you’re really really trying to nail down that contract with Kaiser Permensorrythreemonthsuntilyourappointmente? Because it’s the only way you can raise $100m on a $5b valuation for your macaroni and cheese only microwave?
SF is a gorgeous amazing city with a rich history and jaw dropping views and weather (bring a jacket) but man even as a major proponent I can’t make a business case outside of checks notes access to League of Legends themed investor meetings.
Why do hedge funds pick Manhattan? Why are all the watchmakers in Jura? Why are biotech firms in Boston and New Jersey? Why are all the US car companies in Detroit? The answer is thick hiring markets and agglomerative efficiencies. Top people don't sell equities in Dallas.
With aging parents I empathize a lot with this appreciate you raising it. It’s true the locals will have many reasons to be here and will continue to start businesses and enterprises here.
> you can hire an incredible depth of experts here you can't anywhere else
I’d argue that there are a lot of bad institutional habits in the Bay with regards to software and business management such that the benefit of domain expertise is caught in a nuclear blast of bad “leadership” and dumb capital.
"The industry’s rapid Texas expansion since the onset of the pandemic means the area now has more finance workers than Chicago or Los Angeles, trailing only New York."
https://www.dallasnews.com/business/banking/2024/01/02/wall-...
Regardless, the fact that there are multiple such large centers is a good thing.
Still, the world is a much different place in 2024 than in 1989.
You are stuck making trade offs wherever you base your office, the market remains sort of efficient like that. If you have the network to hire the right talent in say Atlanta, go for it. But many will still do better in SF.
100 other metro areas in the US and 5 other continents.
Many companies are plopping offices right next to university clusters, which is a good solution if you need both talent and cost efficiencies. Consider the research Triangle in North Carolina as one example.
It’s probably shorter to just say SFs appeal is largely to fresh grads who want to party in a city and industry consolidation - both the consolidation of actual tech companies and the financial services that service them, like VCs. SF does not have any monopoly on fresh grads and no longer represents a disproportionate consolidation of the tech industry which is now very spread out.
> You are stuck making trade offs wherever you base your office, the market remains sort of efficient like that.
Absolutely there are tradeoffs. I believe people are struggling to realize the entrepreneurial tradeoffs of SF have changed (as much as I don’t want them to as a local resident), and now disproportionately encourage cynicism - oh wait AI will turn everything around never mind.
I really wish the techs would fully embrace remote work and then just equalize pay already. You can work and live where you want, although you might not get paid enough to live in SF, but it’s your choice and problem.
> SF is a gorgeous amazing city with a rich history and jaw dropping views and weather (bring a jacket)
sounds like you want to convert those warehouses into hotels and start a tourism-focused industry
Well they kinda are. And most of them want to stay in the Bay Area, so you don't end up randomly losing a bunch of your potential "excellent match" candidates because of geographical preference. There are only two other schools in that tier; a lot of MIT grads want to stay on the East Coast.
Carnegie Mellon grads are the recruitment secret superpower though: they all want to get the hell out of yinzburgh as quickly as possible -- anywhere on earth is an improvement. Crazy smart too, especially the ones who do programming languages and compilers.
Restaurants, clubs, drug dealers, ordering your coffee at Starbucks in English not Dutch- all the things you want as a high rising young urban professional is in the city. So if you actually want to attract this talent you cough up the ridiculous amount of money for the privilege of the city.
They have to be or they would be forced to report huge losses from marking down loans. Can’t have that screwing up the exec bonuses. Best to let the next guy deal with it, or heck, maybe they will get lucky and the market will turn around!
“Extend and pretend”
Why are we calling it ugly?
The plus side of this building is that it is one of, if not the most, seismically safe building in the city. So if you’re optimizing for that, you can probably get a great deal right now.
My two cents: If this building ever becomes popular again, it'll be because of the location and not because of the building itself. It's reasonably close both to "Van Mission" (the rebranding of that part of Market Street for high rise residential), a BART stop, and Hayes Valley. It's probably one good Twitter-esque city tax subsidy away from being fully occupied in 5 years.
Off-topic but: That's something I'd really, really like to see.
Check out their YoY finances: https://i.imgur.com/qEmTBMd.png
It's pretty staggering.
The city granted nice discounts for the CEOs to take the spots when rents were up, but now that COVID cratered the commercial real estate market and it still hasn't recovered, there is little office space demand for such a scary stretch.
Square put a lot of work into this building. They installed a massive stadium staircase between three floors.
They've also shuttered one of their multi-floor offices in Atlanta before engineers even got the chance to use the new spaces.
https://qz.com/uber-first-annual-profit-ipo-public-185123420...
How can they possibly recover the near 100 billion they sunk on growth?
What would be a bad sign is if Uber continues to lose money, even in its most mature markets.
This is not at all unusual for a company where the top line is growing. As a point of comparison, Amazon was founded in 1994 and not profitable until 2003.
Drivers are interested in those features because it makes them more efficient. And having a critical mass of drivers is what makes it possible to get a ride in a few minutes. There are other upstarts, but they don't have many drivers, and your potential user market doesn't scale linearly with drivers because nobody wants to wait 30 minutes to get a ride (even with crazy discounts).
Amazon was far from a dominant player in 2003, and AWS wasn't launched publicly until 2006.
From a product standpoint, as others have stated, Uber is a real-time services marketplace vs Amazon which is more about physical goods (again, excluding AWS, which is technically a service). Most of their value is putting all the work into the ground to keep the marketplace balanced, which is a tricky marketing and econometrics problem. One need not look farther than Lyft to see how hard it is to keep the "5 minutes away or less" guarantee.
Also to those who think the app is a non-trivial technical achievement, I would recommend reading some of the blog posts that go into some of the crazy technical challenges they hit [1]. Specifically in some cases, in order to make the app work in all geo's, they ran up against practical limits to binary size at Apple. Not to mention that geo / waypoint data is a genuine "big-data" problem and not easily reproduced by just any company.
[1] https://blog.pragmaticengineer.com/uber-app-rewrite-yolo/
However, I would not want to own a lot of Uber shares with the way FSD is progressing since v12.
I would have thought something like a steel mill would be capital intensive, Uber less so.
It's almost as if your reference was generated by some half-baked AI bot that doesn't know how to contextually interpret comma/period numerical delimiters in financial statements of US companies.
From authoritative source[1], Uber's 2023 bottom line reads $1.887 billion.
[1] https://www.sec.gov/Archives/edgar/data/1543151/000154315124...
Hudson Pacific bought the property in 2010 for $93.0 million [1].
The Canadian pension fund bought a 45% stake for $219 million, and Hudson Pacific kept the remaining 55% [2]. So that equivalent $486 million ($474/sqft) valuation was a 5.2x return in 5 years...
Hudson buys that 45% stake back for $43.5 million in 2024, an equivalent valuation of ~$96million or a 1/5th of the prior valuation. The article states that it's because the pension fund "weren’t willing to put any more capital in”.
The SF city is paying $40/sqft for 157,000 sqft, yet 1,025,833sqft the building was valued at building [1] at the equivalent of $94/sqft in that transaction.
Meanwhile, the other building mentioned in that article sold for $72/sqft... so I guess the pension fund didn't do too bad...
[1] https://www.sec.gov/Archives/edgar/data/1482512/000119312510... [2] https://realassets.ipe.com/cppib-kicks-off-hudson-pacific-jo...
[0]: https://news.ycombinator.com/item?id=40242303
Unfortunately the common person today won’t take advantage. Only the rich will be able to reap the benefits.
At least future generations will have a place to live if this trend continues. Hopefully something that is affordable on UBI if the “AI revolution” really takes off
All supply helps the common person whether they can afford it or not, people pull out this trope all the time and it's completely wrong.
https://www.strongtowns.org/journal/2018/7/25/why-are-develo...
Now back to nomadic.