The plight of the big city downtown is important and it is indisputably local. The post-pandemic hollowing out of downtowns from San Francisco to Manhattan does not just produce bad vibes. I mean, does anyone like an empty downtown? It is also fueling a commercial real estate crisis that is leading to office towers selling at 50% of their assessed value. This is creating a near panic in the CRE industry, particularly as massive debts on buildings that are producing little revenue near maturity.
And we all know that empty downtowns are bad for the small businesses that rely on office workers to make a living. Everything from dry cleaners to sandwich shops.
Of course, the main culprit of this commercial real estate crisis is the pandemic, which sent everyone home. And now many just refuse to come back and deal with the soul-crushingly high cost of commuting – in terms of time, money, and mental health.
What’s a Big City to Do?
So what is a big, iconic American city to do when everyone is just Zooming through their workday on the sofa? Or only commuting as far as the local Starbucks, just to get away from the kids for a while?
Well, if you are in Chicago (my hometown), you are rolling out a master revival plan.
According to Fortune, Chicago Mayor Brandon Johnson is green-lighting a $1 billion downtown revamp plan that will reportedly repurpose commercial real estate on LaSalle Street (kinda like Chicago’s Wall Street). Chicago has seen its commercial property values decline precipitously during the crisis.
One solution we have written about with a fair dose of skepticism doesn’t seem to be going away.
According to a story in Moneywise (via Yahoo Finance) a record 55,000 apartments are popping up in US cities (including Chicago) that were converted from dormant commercial real estate space. And many of these units are commanding luxury rates.
There are many reasons why this solution (which has been widely talked about throughout this crisis) is viewed skeptically. It is just an engineering nightmare to turn an office into an apartment. The bathroom challenge alone will give you a headache if you dare to think it through.
Yet these conversions keep happening, despite the challenges. The glut of offices and the dearth of housing is just such a dichotomy that it cannot be ignored. It certainly seems to have captured the imaginations of city planners.
