“I don’t know what’s crazier…this headline or seeing office properties drop 80-90% in just a few years.”
Kyle Bass, the founder of Dallas-based Hayman Capital Management, explained last year that the office tower segment of the commercial real estate sector is in such dire straights that towers need to be demolished as demand isn’t returning. He also mentioned converting these towers into residential apartments may not be feasible in some cases.
“It’s one asset class that just has to get redone, and redone meaning demolished,” Bass told Bloomberg in an interview.
In recent months, Vornado Realty Trust’s property near Madison Square Garden halted construction of a planned 61-floor office tower after Hotel Pennsylvania was demolished. The unfolding CRE crash forced Vornado to pause construction, with new plans of “temporarily” converting the property into tennis courts for the US Open.
The trend emerging for older towers is a complete tear-down. However, building a new office tower is no longer a viable option, considering the US market has years of elevated supply overhanging the market.
Here’s a great visual from a recent Morgan Stanley note showing how the CRE office segment is plagued with supply.
So, the trend at play is to tear down older towers, but what comes next?
Well, X user Triple Net Investor, citing a recent note from real estate firm CoStar, pointed out that a 68,000-square-foot office tower at 8121 Van Nuys Blvd. in Los Angeles is slated for demolition.
What comes next might be surprising. And it’s not a tower, but actually, the very real possibility of a charging station for electric vehicles.
“Add electric vehicle charging to the list of new uses envisioned to replace underused offices across the United States,” CoStar said.
This is absolutely crazy…
An owner of an office building in LA is seeking approval to tear down the building and construct 30 EV charging stations
I don’t know what’s crazier…this headline or seeing office properties drop 80-90% in just a few years
The commercial real… pic.twitter.com/kTDv4dCb8h
— Triple Net Investor (@TripleNetInvest) February 22, 2024
Triple Net Investor said, “I don’t know what’s crazier…this headline or seeing office properties drop 80-90% in just a few years.”
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