the death of the urban office building

[tede02]

My gut tells me 2023 will be the bottom for office REITs unless we get a big economic downturn in 2024. Sentiment has been so negative. But who knows. I'm not making any big bets. 

 

It's tough to gauge what the next 1-2 years looks like. Corporate America is calling everyone back. Yet, my neighbor who works for Wells Fargo and is in a position to know, told me that despite the call back to the office, the company is cutting its office foot print. This is just one anecdote but it made me think weakness will persist probably for several years as leases expire and companies trim down to what they've realized they actually need in the post-pandemic world. Maybe that means cutting 5-10% of leased space across corporate America. One thing I've learned in markets is how price is always set at the margins. In other words, relatively small changes in supply or demand of anything can really disrupt a market. 

[lnofeisone]

https://www.bloomberg.com/news/articles/2023-10-16/american-work-from-home-rates-drop-to-lowest-since-the-pandemic#xj4y7vzkg

[Gamecock-YT]

[tede02]

8 hours ago, Gamecock-YT said:

 

This doesn't surprise me given that most office real estate is leveraged 50%. A 25% decline in price hits the equity by 50%. It's going to be rough waters for some time. Most buildings probably don't economically work in this rate environment unless they're at least 80% leased. 

 

[dcollon]

https://www.bloomberg.com/news/articles/2023-10-31/despite-remote-work-downtown-nashville-is-thriving-for-residents-and-visitors?srnd=premium

[ValueArb]

From WSJ:

 

Quote

The sale of Signature Bank’s $33 billion in commercial-property loans and other assets is expected to attract bids as much as 40% below face value, offering new evidence of how much property prices have eroded.

 

Regulators closed Signature Bank in March after a run on its deposits, marking the fourth-largest bank failure in U.S. history. Now, the Federal Deposit Insurance Corp. is auctioning off thousands of Signature loans backed by apartment buildings and other commercial properties primarily in the New York region. 

 

Bids are due Thursday on what is the biggest and most closely watched commercial-property sale of the year. Loans are expected to sell on average 15% to 40% below their original face amount, according to prospective bidders. 

 

Those discounts will likely affect values of New York commercial property for a number of years. The market will get an initial data point from the coming loan sale and again when the loans are resolved, either through a payoff, a loan sale or a foreclosure, said D. Michael Van Konynenburg, president of real-estate investment-banking firm Eastdil Secured. 

 

Signature’s loan sale will provide the ailing commercial real-estate market with one of the clearest benchmarks for how badly values have been eroded by the jump in interest rates and the weak return-to-office rate.

 

Edited November 8, 2023 by ValueArb

[tede02]

This is a very interesting article describing how the fundamentals are in place for the cylce to turn. I'm always fascinated by cyclicality and the basics of supply and demand. There's also an interesting point in the article distinguishing the office recovery from the residential recovery post-GFC. The point is office is more likely to echo the bifurcation in retail space where there are still dying malls across the US but modern "experience" properties are doing exceptionally well. Will be interesting to look back 3-5 years out.

 

https://www.cnbc.com/2023/11/26/the-looming-office-space-real-estate-shortage-yes-shortage.html

[CorpRaider]

New 52wk high on SLG.  If I'm being honest, I thought it would be at $50 by the time J Pow went on record saying they were done.

[tede02]

[james22]

Can Turning Office Towers Into Apartments Save Downtowns?

 

Nathan Berman has helped rescue Manhattan’s financial district from a “doom loop” by carving attractive living spaces from hulking buildings that once housed fields of cubicles.

 

https://www.newyorker.com/magazine/2024/05/06/can-turning-office-towers-into-apartments-save-downtowns

[ValueArb]

On 4/30/2024 at 9:59 AM, james22 said:

Can Turning Office Towers Into Apartments Save Downtowns?

 

Nathan Berman has helped rescue Manhattan’s financial district from a “doom loop” by carving attractive living spaces from hulking buildings that once housed fields of cubicles.

 

https://www.newyorker.com/magazine/2024/05/06/can-turning-office-towers-into-apartments-save-downtowns

 

This guy will be a hero in New York, until the first time he tries to raise rents.

[fareastwarriors]

Office-Loan Defaults Near Historic Levels With Billions on the Line

[DooDiligence]

8 hours ago, fareastwarriors said:

Office-Loan Defaults Near Historic Levels With Billions on the Line

 

Time for a grave dancer to step in.

[Spekulatius]

15 hours ago, DooDiligence said:

 

Time for a grave dancer to step in.

He is already in the grave. Can’t dance any more. Maybe he can turn around in his coffin.

Edited May 5 by Spekulatius

[DooDiligence]

16 minutes ago, Spekulatius said:

He is already in the grave. Can’t dance any more. Maybe he can turn around in his coffin.

 

Somebody's guarding a bunch of cash over there.

Edited May 5 by DooDiligence

[Ulti]

https://www.businessinsider.com/blackstone-breit-commercial-real-estate-fund-misled-investors-private-equity-2024-5

[Ulti]

Sorry try this link

https://www.msn.com/en-us/money/realestate/blackstone-has-misled-investors-inside-the-growing-alarm-over-breit/ar-BB1lXcUf

[Gregmal]

11 minutes ago, Ulti said:

https://www.businessinsider.com/blackstone-breit-commercial-real-estate-fund-misled-investors-private-equity-2024-5

I have no skin in the BX game but this is a stale and lazy piece. A “journalist” asks “analysts” and people shorting BX for some edgy material…yawn.

 

It’s flawed and ignorant and has been because it relies on two stupid assumptions. BREIT should be dependent on stonks for its valuation, and that BREIT = BX. Neither are true.

[Ulti]

G.. I was looking at this thru the lens of Breit's AIR communities purchase , a half a bill in renovations and approx. 65 bill in cash for future deals. Doesn't sound like its being run too shabby to the amateur real estate investor like me.

[Gregmal]

Yea its a world class operation. Non traded REITs have existed forever. They're scummy vehicles, and they've always had redemption caps. I guess some of these folks just found out about them recently and cant process that a stock quote isnt a mark for a real estate asset, and that theres not really anything abnormal going on for the non traded reit at BX. 

 

Its also amusing because I dont see how one can whine about BX, without winning 10x more about BAM. 

[Parsad]

https://finance.yahoo.com/news/fort-worths-tallest-building-sells-111742615.html

 

Yikes!  Comparable write-downs anyone?  Cheers!

[fareastwarriors]

How Billionaires Bought 70% of Detroit’s Offices and Transformed the City: Dan Gilbert, the Fords and Ilitches have taken over much of the city, filling buildings with workers and luring young residents back.

[fareastwarriors]

Fearing Losses, Banks Are Quietly Dumping Real Estate Loans

If landlords can’t pay back loans on office buildings, the lenders will suffer. Some banks are trying to avoid that fate.

[nsx5200]

At this rate, our best bet is to have our resident real estate expert get together, and we can all pool together some money to buy out a nice building.  BLF have their flashlights, COBF will have our buildings.