XPost: misc.invest.real-estate, alt.politics.economics, alt.heal   
   h.virus.cure.alternatives   
   XPost: sac.politics, alt.fan.rush-limbaugh, talk.politics.guns   
   From: democrat-criminals@mail.house.gov   
      
   https://sfstandard.com/business/san-francisco-braces-for-epic-commercial-   
   real-estate-crash/   
      
   Imagine a slow-moving train coming towards you. The lights are shining,   
   the horn is blaring, but it’s just far enough in the distance that the   
   risk doesn’t seem real just yet.   
      
   That’s a fitting-enough analogy for the state of San Francisco’s   
   commercial real estate market, which is tilting towards a collapse in   
   property values, leaving the city, its budget and its ability to provide   
   services tied to the tracks.   
      
   The root of this—of course—is the pandemic and the way that it has   
   completely transformed work patterns in the city, hollowing out a downtown   
   core that once accounted for most of San Francisco’s GDP, 70% of its sales   
   tax revenue and 40% of the city’s jobs. And there’s an uneasy feeling   
   among a coalition of business groups that city leaders are sleepwalking   
   into an economic calamity with far-reaching consequences.   
      
   Signal lights of the city’s tenuous fiscal future are starting to flash.   
   Major tech employers like Yelp and Airbnb have fled or gone fully remote,   
   leading to mass office vacancies. A swath of commercial landlords are   
   seeking massive reductions in their assessed property values—and   
   associated tax bills. And a recent report from the Urban Displacement   
   Project ranked the city’s downtown recovery as dead last among more than   
   60 cities across North America.   
      
   ‘Uncharted Territory’   
   It’s no secret that office vacancies are high in SF’s downtown. But even   
   as the pandemic wanes, an already-troubling outlook for downtown could   
   only get worse.   
      
   That’s because a slew of office leases signed at the height of the city’s   
   economic boom are poised to expire over the next few years, further   
   inflating vacancies and diminishing what the office towers that draw the   
   city’s skyline are worth. There’s currently more than 25 million square   
   feet of commercial space available for lease or sublease in the city, the   
   equivalent of about 35 Transamerica Pyramids sitting empty.   
      
   “We’re way above anything that was happening in the Great Recession and   
   dot-com era days,” said Jay Shaffer, a co-founder and principal at Colton   
   Commercial & Partners. “We have this shadow market of sublease   
   availability in seemingly uncharted territories. And sublease inventory is   
   still rising.”   
      
   Citing data from real estate firm JLL, SF’s chief economist Ted Egan   
   tagged future vacancies, in a worst case scenario, as high as 53% in the   
   Jackson Square area and 43% in the mid-Market area in 2024 as the clock   
   runs out on office leases.   
      
   The current vacancy epidemic cuts across buildings of all sizes and price   
   ranges in San Francisco’s downtown core, from the struggling mid-Market   
   area to the sparkling office towers of the East Cut.   
      
   For example, 415 Natoma, a 653,900 sq foot office tower owned by   
   Brookfield Properties that was the sole ground-up office project to   
   deliver in San Francisco in 2021, currently has just one announced lease:   
   20,000 square feet taken by “remote-first” startup Thumbtack. Nearby   
   office towers 123 Mission (Juul Labs, Inc.), 50 Fremont (Salesforce.com,   
   Inc.) and 199 Fremont (CalSTRS) were each at least 30% vacant, according   
   to CoStar data, along with a constellation of other big office buildings.   
      
   A few large buildings, like 550 California St. and 455 Market St, were   
   placed on the market in recent months at deep discounts to what they would   
   have fetched before the pandemic, but were eventually pulled when offers   
   came in that were even lower than those already-discounted prices.   
      
   In the case of 550 California St., a downtown office tower owned by Wells   
   Fargo, bids came in at 60% to 70% under what the building would have sold   
   for in 2019, real estate brokers said.   
      
   Zombie Buildings   
   The risk of a San Francisco real estate collapse is palpable enough that   
   it’s caught the attention of at least one Wall Street hedge fund—and not   
   in a good way.   
      
   Dan McNamara, founder of New York hedge fund Polpo Capital, became known   
   for the lucrative short bets he made against regional malls run into the   
   ground by e-commerce and Amazon.   
      
   Now, McNamara is eyeing the commercial office market for another short   
   bet, and San Francisco is near the top of his list. McNamara started his   
   firm last year to take advantage of what he considers to be mispricings in   
   the commercial mortgage-backed securities (CMBS) market.   
      
   “We thought there was a unique opportunity to take advantage of the   
   impending distress within the commercial real estate market,” McNamara   
   said. “San Francisco has been an amazing example of this; we’ve had all   
   these tech companies that have been driving office space usage for the   
   past 20 years. But we believe that’s changed forever.”   
      
   A report published in November by the Institute of Taxation and Economic   
   Policy (ITEP) calculated that San Francisco could see a short-term decline   
   in commercial property values of up to 43%, the highest projected in the   
   study.   
      
   The logic is obvious: San Francisco’s software-dominant economy pivoted   
   easily away from offices during the pandemic, and has little incentive to   
   return.   
      
   In some ways, the city is a victim of its own success by creating an   
   economic model so heavily dependent on tech in the aftermath of the Great   
   Recession, said Wade Rose, president of the business advocacy group   
   Advance SF.   
      
   “We initiated the growth of an economic sector that could pivot on a   
   dime,” Rose said. “So they closed down fast and exposed this   
   vulnerability.”   
      
   Lenders have taken a dim view of the office market and that’s doubly true   
   for slow-to-recover San Francisco, leaving fewer options for refinancing.   
      
   “It's frozen,” McNamara said of current market conditions. “I do believe   
   San Francisco is the most challenging office market today partly due to   
   the fact they became oversupplied very quickly when the model changed to   
   hybrid.”   
      
   The properties most at risk are mid- to lower-tier buildings purchased   
   near the peak of the market. Commercial real estate insiders say that   
   those property owners are negotiating with lenders to avoid foreclosure,   
   but that it may be sooner rather than later before the dam starts to   
   break.   
      
   McNamara sees refinancing issues leading to defaults, delinquencies and a   
   class of unoccupied “zombie-type buildings.” That may be already starting   
   to happen.   
      
   Of the some 200 large properties identified by CoStar as “high vacancy,”   
   at least three have defaulted on their 2021 property tax bills, according   
   to a city tax database. Those include a property at 25 Taylor St. formerly   
   occupied by the coworking firm WeWork, and a 1182 Market St. property   
   formerly owned by the local real estate giant Shorenstein Properties.   
      
      
   [continued in next message]   
      
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