In the bustling spring of 2016, we found ourselves at the intersection of Wilshire Boulevard and South Figueroa Street in Los Angeles. We had just returned to our office after an unexpected client interaction, but other thoughts began to occupy our minds as we navigated through the crowd.
Amidst the throng of pedestrians, we glanced up at the skeletal structure of the Wilshire Grand Center, which was poised to become the tallest building in Los Angeles. Strikingly, the usual sounds of construction were absent that day, as work had come to a halt.
Tragically, less than 24 hours prior, an electrician had plunged from the 53rd floor, leading to an immediate stop in operations and evacuation of the site. One witness described the sound of impact as “like a bag of cement falling from the edge of the building,” a grim reality we found hard to fathom.
It left us pondering how the fleeting moments felt for the individual as they fell. Did they yearn for a second chance before it was too late?
We suspect many will experience a similar jolt in the coming years—not due to extreme heights, but rather when they become starkly aware of their financial predicaments.
Before delving deeper into this notion, some background is necessary…
A Grand Ego Stroke
A few weeks back, the Wilshire Grand Center officially opened its doors. It proudly claims the title of the tallest building in Los Angeles and the highest structure west of the Mississippi River. However, we have our doubts about this assertion.
In reality, the height of the Wilshire Grand Center is around 18 feet shorter than the nearby U.S. Bank Tower. The spire that extends an additional 100 feet is a peculiar element that serves a particular purpose. According to the Council of Tall Buildings and Urban Habitat—if such an organization exists—a spire qualifies as an architectural feature and is included when measuring the building’s height of 1,100 feet. Nevertheless, we remain skeptical about this classification.
The construction of the Wilshire Grand Center was financed by Korean Air/Hanjin Group, and the assertion of it being the tallest building west of the Mississippi undoubtedly serves to boost Chairman Yang Ho Cho’s ego. We hope he enjoys this accolade while it lasts.
Historically, the erection of iconic skyscrapers has been associated with the twilight of an artificial, credit-fueled building boom. If this pattern holds true, the Wilshire Grand Center may stand as a testament to the era of zero interest rates, negative interest rates, and quantitative easing. Additionally, there are numerous other new skyscrapers set to debut shortly, signaling more to come…
Views from a Top of the Skyscraper Index
The skyscraper index, first articulated by Andrew Lawrence in January 1999, presents a straightforward concept. The world’s tallest buildings often complete construction just as economic downturns begin.
This index accounts for the lengthy timelines required for grand projects, such as skyscrapers. By the time these monumental structures open, the abundant credit that fueled their construction has typically diminished, often coinciding with a broader economic downturn.
Take, for instance, the Burj Khalifa in Dubai, which stands at 2,126 feet and was completed in 2008, right at the onset of the Great Recession. The inexpensive credit that facilitated its construction paralleled the credit that inflated the U.S. housing bubble.
Currently, several other towering projects are nearing completion, far surpassing the Wilshire Grand Center. The most notable is the Central Park Tower in New York, which will become the tallest building in the U.S. at 1,550 feet upon its opening in 2019. Another is the Jeddah Tower in Saudi Arabia, expected to be finished by 2020, reaching an astonishing height of 3,281 feet.
Given the timelines for these new towers, the Wilshire Grand Center could serve as an omen for impending economic distress. The exact timing is difficult to ascertain.
However, it is abundantly clear where the funding for these monumental projects originates—essentially from the same wellsprings that have inflated global stock markets: central bank balance sheet expansions and interest rates hovering near zero or even below zero.
The resulting asset inflation is always transient. The views from the skyscraper index hint at an impending day when time itself will once again accelerate and decelerate amid widespread panic. This will be the cataclysmic moment when the debt-infused structures crumble. Why delay in preparing your financial future?
Sincerely,
MN Gordon
for Economic Prism
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