the death of the urban office building

[bizaro86]

16 hours ago, fareastwarriors said:

the RMR folks are really something.

 

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

 

I don't really get the attraction to DHC. The activists can probably block the merger with OPI if they want, but then they're left with an RMR managed bunch of seniors housing buildings? Or are they planning to also fire RMR and pay the (huge) break fee. Because IMO they can't pay that break fee without raising money.

 

No dog in that fight, except that I was long DHC/short OPI as a merger spread. I closed it for a profit when the spread went to 0, so I missed the run up in DHC to a -100% spread...

[LC]

On 7/2/2023 at 10:13 PM, KPO said:

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 you Denver based? 

 

This is exactly what happened - COVID hit, people stopped going downtown for work. Turned into a ghost town and the homeless moved in.

 

Now it's 3 years later, everyone in Denver would rather be hiking/biking/skiing/etc. so nobody has returned to the office, so the homeless have pretty much taken over. It's slowly getting a bit better but lagging other cities for sure. 

 

We just elected a new mayor who campaigned on "solving homelessness" but like Greg said previously, everyone promises to solve stuff they don't have the power to solve. 

 

That said, downtown Denver/16th street mall was always for tourists, business travelers...kind of like the 9/11 memorial in NYC...people who live in Denver never actually go there. Pretty much every neighborhood adjacent to downtown Denver is much nicer, better restaurants, etc. And then there's Cherry Creek for those with too much money and not enough taste (kidding :D)

[Spekulatius]

On 7/24/2023 at 11:57 AM, LC said:

 

Are you Denver based? 

 

This is exactly what happened - COVID hit, people stopped going downtown for work. Turned into a ghost town and the homeless moved in.

 

Now it's 3 years later, everyone in Denver would rather be hiking/biking/skiing/etc. so nobody has returned to the office, so the homeless have pretty much taken over. It's slowly getting a bit better but lagging other cities for sure. 

 

We just elected a new mayor who campaigned on "solving homelessness" but like Greg said previously, everyone promises to solve stuff they don't have the power to solve. 

 

That said, downtown Denver/16th street mall was always for tourists, business travelers...kind of like the 9/11 memorial in NYC...people who live in Denver never actually go there. Pretty much every neighborhood adjacent to downtown Denver is much nicer, better restaurants, etc. And then there's Cherry Creek for those with too much money and not enough taste (kidding :D)

Its the same in the Bay area - the business downtown are dead and the satellite cities like South San Franscisco become super vibrant.

 

Further away from the large cities, there is no difference to pre-COVID-19 - nature has healed there, at least where I live. I am speaking for small towns like Lowell or Nashua NH. If anything, they have improved a little.

Edited July 25, 2023 by Spekulatius

[rogermunibond]

Shvo betting on SF downtown with renovation of Transamerica Pyramid.  I'm watching what happens here.  Class A office obviously but maybe a bellwether.  B and C office who knows?

 

https://sfist.com/2022/12/21/new-owner-of-transamerica-pyramid-says-it-is-around-80-leased-promises-new-city-park-at-its-base/

[KPO]

23 hours ago, LC said:

 

Are you Denver based? 

 

This is exactly what happened - COVID hit, people stopped going downtown for work. Turned into a ghost town and the homeless moved in.

 

Now it's 3 years later, everyone in Denver would rather be hiking/biking/skiing/etc. so nobody has returned to the office, so the homeless have pretty much taken over. It's slowly getting a bit better but lagging other cities for sure. 

 

We just elected a new mayor who campaigned on "solving homelessness" but like Greg said previously, everyone promises to solve stuff they don't have the power to solve. 

 

That said, downtown Denver/16th street mall was always for tourists, business travelers...kind of like the 9/11 memorial in NYC...people who live in Denver never actually go there. Pretty much every neighborhood adjacent to downtown Denver is much nicer, better restaurants, etc. And then there's Cherry Creek for those with too much money and not enough taste (kidding :D)

I’m not. I was in town for a concert, but used to visit Denver a fair bit for work. Makes sense that the adjacent areas are benefiting as I wouldn’t hang out at the 16th street mall if I lived there based on what I experienced. 

[Ulti]

https://www.morningstar.com/alternative-investments/commercial-real-estate-is-trouble-not-reason-you-think

[tede02]

I had some correspondence with an asset manager in the Class A space very recently. He said there is almost no bid for anything right now outside of private money looking for fire sales. I asked him where he's seeing cap rates and he said it's near impossible to generalize because nothing is moving unless there is seller financing. But to generalize anyway, he suggested quality properties without leasing issues would probably be in the high single digits which I think is about double where things were in 2021. 

 

This is complete conjecture from me but I have a feeling 2023 is going to be the bottom. The headlines are so, so bad right now. The banks don't want to lend, etc. But if I had to guess, there won't be a quick rebound. The only way interest rates are going to drop fast is if the economy softens materially and that won't be good for office space either. Probably going to take years for things to shake out especially when you think about the possibility of repurposing buildings, etc. 

 

But the situation is more subtle. There are newer Class A properties that are attracting tenants and near or completely leased. They seem to be the winners in this cycle. 

[Gregmal]

15 minutes ago, tede02 said:

I had some correspondence with an asset manager in the Class A space very recently. He said there is almost no bid for anything right now outside of private money looking for fire sales. I asked him where he's seeing cap rates and he said it's near impossible to generalize because nothing is moving unless there is seller financing. But to generalize anyway, he suggested quality properties without leasing issues would probably be in the high single digits which I think is about double where things were in 2021. 

 

This is complete conjecture from me but I have a feeling 2023 is going to be the bottom. The headlines are so, so bad right now. The banks don't want to lend, etc. But if I had to guess, there won't be a quick rebound. The only way interest rates are going to drop fast is if the economy softens materially and that won't be good for office space either. Probably going to take years for things to shake out especially when you think about the possibility of repurposing buildings, etc. 

 

But the situation is more subtle. There are newer Class A properties that are attracting tenants and near or completely leased. They seem to be the winners in this cycle. 

Class A trophy always wins. No matter what asset class or macro situation. If you own the best of something, anyone who is even remotely interested will want it. 

[UK]

https://www.wsj.com/articles/wall-street-is-ready-to-scoop-up-commercial-real-estateon-the-cheap-6edac64f?mod=hp_lead_pos2

 

Wall Street firms are raising new funds to acquire office buildings, apartments and other troubled commercial real estate, looking to scoop up properties at a fraction of the price investors paid a few years ago. Cohen & Steers, Goldman Sachs, EQT Exeter and BGO, formerly known as BentallGreenOak, are among the prominent names raising billions of dollars for funds to target distressed assets and other real estate with slumping values, according to regulatory filings. “The last few weeks, I’ve been saying, ‘holy mackerel, they’re coming out of the woodwork,’” said Kevin Gannon, chief executive of Robert A. Stanger & Co., an investment-banking firm that tracks real-estate fundraising.

[Ulti]

Mf single rental outlook

[rkbabang]

Are they just stupid or are they deliberately trying to destroy the cities?

 

Buildings Are Empty, Now They Have to Go GreenRising rates, falling occupancy and new carbon taxes hit building owners

 

or archive.today version:  https://archive.ph/YLu3p 

 

[Gregmal]

Wonder if they’ve set equitable water distribution regulations yet? Or are they waiting for the fire first? Whoops.

[fareastwarriors]

 

 

Return-to-Office Is a $1.3 Trillion Problem Few Have Figured Out

 

https://finance.yahoo.com/news/return-office-1-3-trillion-230004156.html

[Castanza]

Quite a few employers starting to push people back to offices. Wouldn't be surprised to see political pressure on companies to push them back if the CRE market get's bad enough. 

[Saluki]

I thought until recently that tech is going to make living in cities less desirable. If I can Zoom into meetings, why not have a bigger house further out, than live in a cramped apartment?  Why pay for a lot of office space, when you can pay for a smaller space and have "hotelling" when people need to come in for a meeting?  

 

My thinking has gotten more nuanced on it.  I was reading "The Logic of Life" by Tim Harford (it's a book like Freakonomics) and he was pulling up data about how tech makes living in cities more attractive. Clusters of specialized people (chip design in California, pharmaceuticals in New Jersey, Finance in NYC, biotech in Boston) lead to quicker advancements in industries. And tech like railroads, internet, food preservation, let's larger numbers of people in cities be viable with finished goods and food shipped from further away.  Although we have email and facetime, you don't suddenly start engaging with people around the world.  You use those tools to engage with people near you. You call your friends and email them, to arrange to do social things in your city, not have random interactions with people in a different city (COBF is the exception). 

 

I no longer think big cities are dying (despite the efforts of places like San Francisco to kill them), and there will probably be a need for office space that is somewhere between pre-pandemic levels and where it is now, which is the low point.  But I don't know where that point is. It's going to take rational discussions about why we need people in the office and when rather than saying "we need them in here because we are paying for rent on this builiding". You are paying the rent whether people are there or not. 

 

I'm more productive at home because I don't have the distractions of people knocking on my door and saying "do you have a minute". But for people in a creative field or people who work better in groups, they may get a benefit from being in the office that I don't. 

[rkbabang]

3 hours ago, Saluki said:

I thought until recently that tech is going to make living in cities less desirable. If I can Zoom into meetings, why not have a bigger house further out, than live in a cramped apartment?  Why pay for a lot of office space, when you can pay for a smaller space and have "hotelling" when people need to come in for a meeting?  

 

My thinking has gotten more nuanced on it.  I was reading "The Logic of Life" by Tim Harford (it's a book like Freakonomics) and he was pulling up data about how tech makes living in cities more attractive. Clusters of specialized people (chip design in California, pharmaceuticals in New Jersey, Finance in NYC, biotech in Boston) lead to quicker advancements in industries. And tech like railroads, internet, food preservation, let's larger numbers of people in cities be viable with finished goods and food shipped from further away.  Although we have email and facetime, you don't suddenly start engaging with people around the world.  You use those tools to engage with people near you. You call your friends and email them, to arrange to do social things in your city, not have random interactions with people in a different city (COBF is the exception). 

 

I no longer think big cities are dying (despite the efforts of places like San Francisco to kill them), and there will probably be a need for office space that is somewhere between pre-pandemic levels and where it is now, which is the low point.  But I don't know where that point is. It's going to take rational discussions about why we need people in the office and when rather than saying "we need them in here because we are paying for rent on this builiding". You are paying the rent whether people are there or not. 

 

I'm more productive at home because I don't have the distractions of people knocking on my door and saying "do you have a minute". But for people in a creative field or people who work better in groups, they may get a benefit from being in the office that I don't. 

 

 

Where that is true people are using the tech wrong and less efficiently as they could be.  Since COVID my company (semiconductor industry) has gone trough a transformation.   My team now has people in MA, NH, AZ, CO and Italy.  You can put someone on a team if their skill set matches what is needed regardless of where they are located.  I do go into the office a few times per week because I want to (usually 2 days on average), but even when I'm there only a couple of people I work with work in my location.    Some people prefer the office and go in 5 days a week, others don't go in at all on average and have given up their cube.  They use the hoteling in the rare event they go in.  Like anything else, some will change/adapt and others won't.  Some industries will need to adapt and others will not have to.  I don't think things will ever go completely back to pre-covid days when almost everyone worked at the office 5 days per week.  I've noticed that when I get contacted by headhunters now every job is either remote or hybrid.  You just never saw that at all pre-2020.

 

 

 

[Gregmal]

Yup, the big cities are effectively dead without office. It’s still reverberating. But from the top down everything relies on office occupancies. The tax base especially drives the long term prospects. So for places like SF or NY…I mean yea it’s great you still have people living there, but the recovery has an awfully long way to go. People will sign 6/12 month leases without thinking, but net/net you need a massive turnaround in office absorption and a 10-20 year commitment in the current environment just doesn’t seem like it’s enticing too many companies. 

[rkbabang]

I almost wonder if long term this could be a positive.  Companies need far less office space than they used to, but that means that you can fit far more companies in the same amount of space.  In other words a city like NYC could just have to grow into its current square footage.    Which, in the long term, could mean the same amount of office buildings, but more companies, more people, more restaurants, more retail, and a lot more residential.  That's the best case, I guess.  It will take a long time to get there, if ever, and the corrupt tax&spend politicians aren't helping.

[Gamecock-YT]

9 hours ago, Castanza said:

Quite a few employers starting to push people back to offices. Wouldn't be surprised to see political pressure on companies to push them back if the CRE market get's bad enough. 

 

just trying to get people to quit so you don't have to pay severance/layoff costs

[CorpRaider]

Copy and paste FiDi over midtown.  The boss wants you at hand for his convenience, just like he did when great great grandad had to shut his solo smithy and come to the bidness premises to get the greenbacks.

Edited September 6, 2023 by CorpRaider

[Castanza]

12 hours ago, Gamecock-YT said:

 

just trying to get people to quit so you don't have to pay severance/layoff costs

What’s funny about it is everyone I know who is full time wfh said their companies productivity numbers have done nothing but go up. Sad it boils down to nothing but some personal power validation. Gotta have your subjects in office so you can lord over them and feel important parking your Porsche in premium parking spot

[Castanza]

14 hours ago, rkbabang said:

I almost wonder if long term this could be a positive.  Companies need far less office space than they used to, but that means that you can fit far more companies in the same amount of space.  In other words a city like NYC could just have to grow into its current square footage.    Which, in the long term, could mean the same amount of office buildings, but more companies, more people, more restaurants, more retail, and a lot more residential.  That's the best case, I guess.  It will take a long time to get there, if ever, and the corrupt tax&spend politicians aren't helping.

Another angle the could be a positive from remote work is a resurgence in small town/city productivity. There is no question that smaller towns have been dying in the US. Late 90’s - 2010’’s really pushed this narrative along as more and more manufacturing left and jobs that required higher education and commanded higher lay moved towards big city centers. This causes massive economic disparities long term. 
 

But I do think there is a large amount of people about there who wish they could live in smaller towns but also make good money. Well now we have a solution…and with that solution comes more taxes revenue and consumer/expendable business demand for small towns as higher income earners move in. Will be interesting to see how this plays out over time. 

 

[rkbabang]

1 hour ago, Castanza said:

Another angle the could be a positive from remote work is a resurgence in small town/city productivity. There is no question that smaller towns have been dying in the US. Late 90’s - 2010’’s really pushed this narrative along as more and more manufacturing left and jobs that required higher education and commanded higher lay moved towards big city centers. This causes massive economic disparities long term. 
 

But I do think there is a large amount of people about there who wish they could live in smaller towns but also make good money. Well now we have a solution…and with that solution comes more taxes revenue and consumer/expendable business demand for small towns as higher income earners move in. Will be interesting to see how this plays out over time. 

 

 

Yes, with the political situation in the cities your scenario might be more likely.  There is and always has been a huge advantage to population density, especially for the young.   But at the very time those advantages are starting to be mitigated by technology the city elites are doing everything in their power to drive people away by making their cities expensive, over regulated, crime ridden, dirty, and just generally unlivable.  A migration away from the large cities could very well take place and last for decades. 

 

[CorpRaider]

SLG back over forty and JPow hasn't even put down his pencil yet.

[CorpRaider]

I'm in the black on all my SLG (not counting dividends as those aren't relevant to my loss aversion fallacy).  I should probably dump it all and move over to $CLPR and $SAVE.

Edited September 19, 2023 by CorpRaider