Cities Are Dead
Cities Are Dead
Fred Cordova CEO of a real estate consultancy based out of Santa Monica recently declared that a third of all office buildings will have to be torn down. He said in Fortune Magazine:
“There will be a bifurcation…The product in a good location with a good, safe environment will recover. And then you’ve got another group that will somehow hang in there and get reset in pricing. And then you have the others that are basically worth nothing—the D class. Those just have to be torn down. That’s probably at least 30% of all offices.
Even Federal Reserve Chair Jerome Powell predicts that small banks, those that traditionally funded office buildings, will close or merge due to real estate weakness. He said on 60 Minutes:
“We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. They’re some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know, we’re working with them. This is something we’ve been aware of for, you know, a long time, and we’re working with them to make sure that they have the resources and a plan to work their way through the expected losses.”
The failure of downtown office buildings is due to people working at home. When COVID forced people to stay home they learned, all together and all at once, that technology had advanced to the point where you didn’t need to schlep your way into the office every day.
If you add to this the “defund the police” movement and the massive increase in crime one wonders if cities will ever come back. There were over 1,000 carjackings in Washington D.C. last year.
Historically the world is littered with empty cities from ancient Troy to Troy, New York. From the Rust Belt to the old coal towns of West Virginia you will find shattered glass and boarded up main streets.
There is also an urban doom loop theory which supposes that falling property values shrink a city’s tax base which cuts off funding for essential public services which in turn reduces property values.
The corporate media will have you believe that there is no longer cheap housing in this country. They are wrong. Here is the Zillow map for Baltimore houses under $200,000:
There is plenty of cheap housing. It’s just not in places where people want to live.
History of Cities
Cities are founded on trade. Big cities got big because of deep water ports and navigable rivers. New York has the best natural harbor in the world and the Hudson is tidal to Albany. This means that sailboats could ride the tide both ways.
Other cities like Atlanta grew on a railroad hub. Dallas purposely built the largest airport in the world in 1974 and transformed itself from a rural town into a megacity of 7.5 million people.
People go to cities for trade, culture, education, and economic opportunity. Most if not all of these are no longer the sole domain of urban areas. Most of our stuff comes from Amazon warehouses built in the middle of nowhere along some interstate highway.
The biggest trade hub in the world is the New York Stock Exchange, which is technically located in a server farm in the New Jersey countryside.
Outside of day trips to see professional sports and museums, culture can be found in most places without the hassle of parking. The best museum in the world is located outside Dulles Airport. And most professional sports stadiums are in the suburbs.
Outside of universities like Johns Hopkins, the education in most cities is awful. And with many people working from home in the suburbs, economic activity happens mostly online.
And I haven’t even started talking about the filth and degradation found in the druggy encampments, the endless tent cities dedicated to fentanyl.
No, cities are over. Stick a fork in them. They’re done.
All the best,
Christian DeHaemer
Pro Trader Today