the death of the urban office building

[Spekulatius]

1 hour ago, Gregmal said:

Ya so is their residential markets. But don’t feel bad for them, they’ve had two decades like few will ever see. It’s a result of their wokeness. Tech, aka them, drives work from home. All the new age mantra they embrace will be their undoing. I’d be much more comfortable in Boston which is a life science and financial hub, or NY which is heavily old school financial machismo and a good mix of everything else. Chicago is dead and SF is not dead but due for a major correction.

Both residential and commercial RE in SF is prone to crashes. I have seen it in 2001 and 2009. This time is more self inflicted - the crime rate makes going to the city undesirable and most people hang now out in suburbs.

 

We visited relatives and friends in the Bay Area and never even went to the city, but formerly dead places like South SF have now lively small downtown areas where people hang out.

 

Just fixing the crime issue would go a long way to revive the city, because now daytime SF is now how Tenderloin used to be past midnight. I have no idea how Tenderloin is nowadays is past midnight and no desire to find out.

[Dinar]

2 hours ago, Gregmal said:

Ya so is their residential markets. But don’t feel bad for them, they’ve had two decades like few will ever see. It’s a result of their wokeness. Tech, aka them, drives work from home. All the new age mantra they embrace will be their undoing. I’d be much more comfortable in Boston which is a life science and financial hub, or NY which is heavily old school financial machismo and a good mix of everything else. Chicago is dead and SF is not dead but due for a major correction.

Amen, that's why I have 17% of my portfolio in NEN (bought in 2004, sold in 2007, and bought back in fall of 2009.)

[fareastwarriors]

3 hours ago, Gregmal said:

Ya so is their residential markets. But don’t feel bad for them, they’ve had two decades like few will ever see. It’s a result of their wokeness. Tech, aka them, drives work from home. All the new age mantra they embrace will be their undoing. I’d be much more comfortable in Boston which is a life science and financial hub, or NY which is heavily old school financial machismo and a good mix of everything else. Chicago is dead and SF is not dead but due for a major correction.

 

From my first to last day (2011-2018) of working in downtown SF, it was a ghost town after 7pm. Sometimes I go into the office during the weekend and the whole area was absolutely empty. Nothing was opened and nobody in the streets. They should've built ten of thousands of resi units and made it a 24/7 area. Clearly the demand was there. Now they are stuck with all these empty buildings and out of control homelessness and crime.

 

Still way too fuking expensive for everything though. If people can get SF for half price,  homelessness and crime wouldn't be such big issues 

Edited September 13, 2022 by fareastwarriors

[CorpRaider]

https://nypost.com/2022/09/18/back-to-work-barometer-falls-short-of-measuring-up-to-reality-as-offices-fill-up/

[fareastwarriors]

New York City’s Empty Offices Reveal a Global Property Dilemma

 

 

The rise of remote work will hurt older buildings, leaving landlords in the lurch

 

[CorpRaider]

I caught that interesting article yesterday.  Didn't look at the embedded chart as closely (I thought that stroll down third ave was neat).  That chart makes me wonder what the delta is between NYC and some of those other markets (the flattening and even declining trend in a couple of them).  Related Cos continuing to plow ahead and the We-plosion? 

 

SLG comments on recent sell side call implied that overseas capital allocators participating in their joint ventures of late think the US is just behind their markets in return to office....maybe due different tightness in labor markets?

Edited September 26, 2022 by CorpRaider

[sundin]

On a refinancing analysis, there's likely a significant amount of older class A office assets (in the markets above) that are at a shortfall. As the lender, you'd only go into these deals on the assumption that occupancy will improve or you'll be able to extract higher rents given the higher rates. If this trend remains and financing becomes difficult, you likely see price discovery or distress with assets sold at losses on some of these office REITs.  

[fareastwarriors]

How many viable candidates and at what costs?  We need to see more of these conversions across many cities.

 

Chicago to Convert Famous Business District Office Buildings to Apartments

City plans to provide tens of millions of dollars in subsidies to revitalize the LaSalle Street corridor

[Gregmal]

11 minutes ago, fareastwarriors said:

How many viable candidates and at what costs?  We need to see more of these conversions across many cities.

 

Chicago to Convert Famous Business District Office Buildings to Apartments

City plans to provide tens of millions of dollars in subsidies to revitalize the LaSalle Street corridor

Maybe they can do something useful with Citadels space.

[tede02]

Interesting discussion about state of office market with Boston Properties CEO. He suggested that work from home trend has plateaued or moderately reversed with more people in the office in 2023. Also echoed some points of other industry players including the major bifurcation between A properties and lower tier stuff (high quality doing relatively well with lower quality seeing lots of vacancies). Also struck me his point around the public REITs being off 50% meanwhile the ncreif index, which is based off appraisals, is down 5-6%. Very interesting market. 

 

 

Edited April 8, 2023 by tede02

[DooDiligence]

Zell moving out of office and into warehouse and industrial was profitable and prophetic.

[tede02]

This is just an anecdotal observation from me, but one thing I'm observing in the suburban area I'm in is there is very little office space available. I'm 15-20 miles outside of Minneapolis and there is not much space available, particularly quality buildings. The pain is really concentrated in the urban areas. Will be interesting to see how it all plays out over the coming 3-5 years. Bargain hunters seem to be seeking opportunities: https://www.bloomberg.com/news/articles/2023-05-09/new-york-s-empty-office-buildings-lure-rich-families-hunting-bargains. 

[John Hjorth]

20 minutes ago, tede02 said:

This is just an anecdotal observation from me, but one thing I'm observing in the suburban area I'm in is there is very little office space available. I'm 15-20 miles outside of Minneapolis and there is not much space available, particularly quality buildings. The pain is really concentrated in the urban areas. Will be interesting to see how it all plays out over the coming 3-5 years. Bargain hunters seem to be seeking opportunities: https://www.bloomberg.com/news/articles/2023-05-09/new-york-s-empty-office-buildings-lure-rich-families-hunting-bargains. 

 

It's a fascinating phenomen : dumpster diving / container archeology taken to the extremes, all about position sizing for each subject is 0% or 100%, unless one has some partners in crime to share risk and capital outlay with.

[CorpRaider]

SLG marking 245 park UP from last August (~$1.8 Bil of assumed debt; of course it's now coming with their plan and paper: "sponsorship").  I think they're pretty much done with the planned $2 billion of funds to be raised/balance sheet changes this year with this billion, ~$500MM from completed 919 3rd ave refi, and ~$500MM they will get upon from TOC at One Madison (early 4Q last guide, pretty much a done deal).

 

Edited June 27, 2023 by CorpRaider

[ValueArb]

I am just finding out about Prop C in San Francisco and its loss of corporate headquarters since it was enacted.

 

https://sfstandard.com/business/revenue-from-homelessness-tax-plummeted/

 

Quote

 

Friedenbach disputed that the tax was encouraging companies to keep their workers out of SF.

 

“Companies are not leaving due to a tiny little half a percent tax on income over $50 million,” she wrote in an email. “That has always been hyperbole.”

 

 

I think she is missing that there is always a tipping point.

 

Quote

The financial services division of Block that is still called Square generated revenues of $5.2 billion in 2021. It would have paid around $15 million in Prop C tax if half of its employees were working from SF, and $21 million in regular business taxes, according to a Standard analysis. With most employees working from home and no big offices in SF, Square’s tax revenue to SF is likely just a fraction of that now.

 

Block's SF taxes increase from $21M to $36M because of Prop C. So moving out of SF before Prop C would have still saved it close to $20M a year, with Prop C its close to $35M a year. Comparing them to revenues is misleading, if Block was as profitable as Shift4 that $5B would generate $250M in after tax profits. Moving the HQ would increase profits about 8% before Prop C, and 14% after it. 

 

Block probably moves either way but it certainly became a much more obvious decision after Prop C. Now if Prop C has reduced homelessness and crime significantly, the benefits of staying in SF might offset those higher tax costs. I'm not aware of what impact it had, does SF still have any significant homeless or crime issues?

[Gregmal]

No matter how much money these scummy liberals take via taxes in the name of solving problems…those problems never actually seem to get solved. Weird eh?

[rkbabang]

4 minutes ago, Gregmal said:

No matter how much money these scummy liberals take via taxes in the name of solving problems…those problems never actually seem to get solved. Weird eh?

yep.  If you think about the trillions stolen from the American people by all levels of government + the money they create and spend. If giving the government money could solve these problems we’d be living in a Utopia.

 

Just look at education spending.  The spending line goes up almost exponentially over time. The number of administrators goes up with spending. Yet test scores either don’t move much at all or decline.   Government is nothing but the gang of thieves people are afraid would take over if we had no government:

[Gregmal]

I just want accountability with stupid, simple stuff. Like if you're taking money to build a world class public transport system, aka like those evil tyrants in China and UAE, just put a friggin price tag on it, collect that cash, and then deliver it. At least then we d have something to show for it, even if overpaying or getting ripped off. Here and especially in places like NY and Ca….we ve been hearing about all this infrastructure improvement for decades….where is it? I don’t expect an answer for drug use issues, I dont expect homelessness to be solved easily. But buildings, bridges, roads, parks, etc….it’s not hard to fix that stuff. They’ve done more in China and the UAE in the last decade than the US government has done in 50 years. They can’t even fix potholes on route 80….

Edited July 1, 2023 by Gregmal

[Castanza]

On 7/1/2023 at 3:03 PM, ValueArb said:

does SF still have any significant homeless or crime issues

LOL yes, yes it does 

[rkbabang]

1 hour ago, Castanza said:

On 7/1/2023 at 3:03 PM, ValueArb said:

does SF still have any significant homeless or crime issues

LOL yes, yes it does 

Yeah. That’s like asking are 30-50 people still murdered in Chicago every weekend? Yes, every leftist run city in the nation is a shitshow.

[Castanza]

1 hour ago, rkbabang said:

Yeah. That’s like asking are 30-50 people still murdered in Chicago every weekend? Yes, every leftist run city in the nation is a shitshow.

Lol my favorite argument is when people bring up per capita stats to make it seem like LA or SF is actually better on this than small cities or large towns. Newsom tried to do this in a recent interview. 
 

When the reality is the 40 homeless people and 6-8 homicides a year in a city of 80k people has hardly any affect on the general populace and public amenities or living conditions. Yeah, might be higher per capita, but there aren’t entire blocks or city sections full of trash and tents. Parks are generally clean and well maintained and you don’t have to worry about some dude bathing in the town center fountain.
 

In general I think problems are just easier to manage in mid to small sized cities. Easier to understand the scope of the problem and make changes to address the issues. Certainly problems everywhere, but big cities have a truly unique aspect that almost incentivizes the bad aspects. Such a complex issue. 
 

But LA has what 100k homeless give it take a few? They spent 1.3B on combatting this lol….so you spend 130k per homeless person per year? Unless I’m not understanding the yearly budget….. I mean…..
 

 

[Gregmal]

15 minutes ago, Castanza said:

But LA has what 100k homeless give it take a few? They spent 1.3B on combatting this lol….so you spend 130k per homeless person per year? Unless I’m not understanding the yearly budget….. I mean…..

Yup, it’s insane. $1.3b a year if true just shows the depths of corruption and incompetence bc that’s enough money to buy quarter acre parcels and trailer parks for each of those bums and then you’re done with the problem. 
 

Same in NY, gather them up, send them upstate and give ‘em a voucher for a mobile home or something. Then get ridiculously tight enforcing loitering and those type of laws/regulations…problem solved. No one has a right to complain because if they’re still there it’s their own fault.

The politicians are elected by the people and the people of those cities don’t want these problems solved. So they’re getting what they deserve. Which is trash bag lined streets, rats and cockroaches, drugs everywhere, and violent crime…I don’t think those things rule bruh!

[KPO]

I’ve spent the last few days walking 35-40K steps per day through the Union Station and central business district of Denver and it’s been eye opening. There seems to have been a second order effect of Covid that took 40-50% of the 16th street mall retail out. Homeless people were everywhere in what sadly resembled a post-apocalyptic world. Around Union Station I’d estimate 40-50% first level vacancy in a three block radius. We saw a Starbucks in the first floor of the First Western Trust building that didn’t have a single table or chair inside, so obviously getting ready to close. Also saw two beautiful brand new 4-5 story buildings by a Denver brewing company location that were 100% vacant. I was starting to warm up to potential contrarian commercial real estate investments, but this definitely stops those thoughts.
 

Are others seeing this in their neck of the woods?

 

[fareastwarriors]

the RMR folks are really something.

 

Hedge Funds Brawl Over Battered Commercial Real Estate - Distressed investors are fighting over REITs trading at discount prices

[Gregmal]

Yea it’s classic “don’t be a hero” situation in office. Do I have gut feelings? Sure. Burning desires to put on trades? Yup. But why reach for the riskiest dollars when there’s greener pastures elsewhere?