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Comment by AzzieElbab | Hacker News Reader

It is not just about teams and people. It is political - cities are struggling when people do not come to work, and it is financial - many companies have taken loans putting the real estate they own as collateral; if commercial real estate devalues, these companies are facing margin calls.

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Yes, but this is like the opposite of a tragedy of the commons scenario. Are you saying the companies do this in order to save the cities and real estate prices? That's likely not even a small factor at the bottom of the list.

I am not reading anyone's mind. I am simply stating that there is political pressure and there are financial incentives

I hope the RTO push fails to cause maximum collateral damage in that case.

Can you give any specific examples of financial incentives to software companies who are forcing RTO?

Your employer had taken a loan and put some of its assets down as collateral. What happens when the collateral loses its value?

Tax credits linked to FTE count. If employees are no longer working downtown their income tax goes to their home city or even another state.

It's sunk cost fallacy -- especially at the FAANGs. These companies spent billions on monuments to the company's greatness. These buildings, MPK 20 & 22, The Donut, Amazon HQ2, the Circus Tents, aren't just unsellable from the psychological sense, they're unsellable in a practical sense. The number of companies that need/want 2.8 million ft2 (262,000 m2) of nigh-undivided office space can be counted on one hand -- and all of these already have their own white elephant.

Mix in monkey-see-monkey-do management of smaller firms, and of course straight up class antagonism towards workers, and you've got RTO über alles.

Totally agree with this, I’m just saying that few, if any, companies would make the decision to force people back in the office based on the well-being of cities or the real estate market.

All companies act in their best interest and that’s kind of it.

But this isn’t acting in their best interest. It’s acting on the personal feeling of inadequacy of the execs. That’s it.

> The number of companies that need/want 2.8 million ft2 (262,000 m2) of nigh-undivided office space can be counted on one hand -- and all of these already have their own white elephant.

I partially disagree: if necessary, rent out various parts of this office space to multiple companies.

These buildings aren’t designed for subdivision, and attempting to subdivide them, probably would cost 100s of millions.

For instance, MPK 2x are essentially airplane hangers.

companies do this to prevent a social-economic collapse. what's the point of building up a company if there's no society left to enjoy it in?

My experience is that companies almost never own their own buildings - at most they may have a long term lease, and even then long term is maybe 5 years.

It's not uncommon for companies to buy the property, especially if they become flush with cash.

And then a few years later a new CFO comes in and engineers a sale and lease-back transaction to make the financial report metrics look better.

Commercial real estate is a highly complex beast. Some companies build offices and sell them to an affiliated REIT while guaranteeing occupancy rates, banks build their office towers and go through great length to turn them into cash assets. It is very different from state to state due to taxes and regulations.

My experience is certainly limited. Seems to me, for a bank to enter into that kind of arrangement aligns much more with the core skill set vs tech companies in the typical HN community. But even then I could see the FANG companies with a lot of guaranteed cashflow owning, but at some way down the scale to smaller companies, I would think it strongly becomes to something to avoid for tech companies.

I bet that many of the execs and board members have ties to commerce around offices: the overpriced rental complexes, restaurants, cafes and so on. Who wouldn't want to pay employees and simultaneously set the rent prices where those employees have to live?

Real estate is an investment. All investment vehicles comes with a potential for profit and risk of loss. They should have done their homework.

I mean, sure. But let's acknowledge that "global pandemic" was justifiably considered a low probability before 2020. Even today should companies price in a meteor strike? Will they be out-competed in an existential timeframe if they do?

Remote working was already a trend before the pandemic, it only accelerated it massively.

“Only” and “massively” are in conflict here. The massive effect of an unexpected event is how we got to this exceptional situation.

a) "global pandemic" was _not_ considered a low probability by epidemiologists or by governments. the US set up a pandemic office during the Obama administration for exactly this reason. partly because everybody knew climate change and globalization increased the risk of pandemics, and partly because pandemics tore through Asia and the Middle East in 2002 and 2012.

b) remote work has been making office buildings obsolete for decades now. it is fundamentally absurd to say that you need people to get together in one room in order to build a distributed system. neither office buildings nor the "open plan" spaces inside have made any real logical sense for the tech industry in a very, very long time.

I agree with you in general but in the context of real estate investment I'm not sure the sudden normalization of WFH and effect on commercial real estate was reasonably predictable.

From a macro perspective it certainly was predictable given the trends that have been mentioned. From a micro “make as much money from the most suckers now” and “build it and sell it to a REIT” perspective it was able to be ignored.

Ok so who were the big winners who bet on the pandemic?

In the example I provided, it would be those that sold their commercial real estate before the pandemic. Other winners would be pharmaceutical companies, residential builders, internet retailers, people that prefer working from home, and families that enjoy each others company to name a few.

However, I was not addressing that.

Who sold their commercial real estate pre-pandemic? Who is the big winner here that saw the thing everyone else missed?

Obama set up a pandemic preparedness office which coordinated with China. can't call it a huge win, since the other guy dismantled it in 2018, but easy to say there's a person who saw a thing that others missed.

(edit: oops, I said that already. sorry, it's been a week. only just saw this reply.)

the big win with remote work is not selling off commerical real estate but being smart enough not to buy it in the first place. or to found a screensharing and video chat company. so a big winner there is Zoom. and a whole set of winners would be the companies who were already doing remote work and didn't have to skip a beat.

other companies which saw a boost from the pandemic: literally all of e-commerce. every sketchy ad on Instagram selling a $10 product from Alibaba for $50. and the platform they ran on: Shopify. which of course overhired when it saw a huge boom in traffic, and now has had to correct that overhiring.

delayed reply but there are countless examples.

What responsibility do the rest of us have to keeping the commercial real estate market healthy?

None. I’m just pointing out the decision making isn’t surprising from a corporate perspective.

None. But that's orthogonal to your GP's point - "They should have done their homework." This was not a case of missing "homework". This was literally a once-in-a-century event no one plans for.

There are many once-in-a-century possibilities like flooding, fires, terrorism, pandemics, structural failures, wars, ecological disasters, eminent domain, etc. Add them all up and you actually have a many-in-a-century event scenario. Companies that are already setup for remote work will be at an advantage, by not having a large percentage of their resources at a single or several large locations, and able to continue operations with little or no disruption.

In short, the remote model is decentralized and therefore more resilient and less risky.

Sure but what you do about these events is very different. Eminent domain and business districts are almost synonyms and much different than a war or terrorism. How do you price all of this into your real estate buying decisions? I don't dispute the benefits of remote work but can we at least admit that the world changed drastically and unpredictably in the last few years?

The impact is the same regardless of event. A centralized location being affected by any of these events is going to impact business negatively to a much greater degree than a company whose workers are spread out in different locations.

As for real estate buying decisions, it depends on the industry of course. So, given a standard tech business, you buy what you need for positions that cannot be performed remotely and estimated space for those workers that desire to work at that location hopefully in a location close to where these workers live (which is likely not in a typical downtown city location). Basically, smaller satellite offices near where the people that have to go to a physical location live.

> The impact is the same regardless of event.

It isn’t though. Eminent domain increases property values. Pandemics and terrorism decrease it.

> So, given a standard tech business, you buy what you need for positions that cannot be performed remotely and estimated space for those workers that desire to work at that location hopefully in a location close to where these workers live (which is likely not in a typical downtown city location).

This is divorced from the reality I live in. My city developed a business district complete with housing and entertainment near downtown. That area is dead now and the city is understandably concerned. It wasn’t a bad idea before but now it hasn’t worked out. But I can’t blame the businesses who invested. They seem to have made all the right decisions. It wasn’t clearly a mistake pre-pandemic. In fact it was all very progressive and forward-looking.

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