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San Francisco office values fall
- femiagbabiaka 3y agoWhat a very odd article to come from a think tank, it's titled and reads like something from the NY Post. At any rate, reading the article shows that a specific buildings value fell 75%. Anyone have better data? And how it compares to other cities?
- claaams 3y agoNew York has solved this by keeping the offices valued at the same price but just letting them sit empty.
- iinnPP 3y agoSometimes there are tax incentives to this. And the homeless population keeps going up.
- christkv 3y agoI remember there being some weird financial thing causing that as offering low rental prices could trigger loan conditions
- baremetal 3y agoWhen commercial loans are renewed (and they are because commercial loans are usually rolled over and not paid off, ie interest only) things like the occupancy rate, rent cost, creditworthiness of lessees and other things are factored into the new loan terms. So if the rental rate is lower then interest will be higher on the loan. Or the loan provider will okay a smaller portion of the loan requiring you to cough up the difference. Example a $10m building, you put $1m down on. You go to refinance the loan and they are only willing to float you $7m now because you arent able to charge as much rent to tenants. Thus requiring you to come up with $2m or lose your $1m investment and the building.
- christkv 3y agoThat was it :) creating an incentive to not rent out space at all. Probably even worse now with the high fed rate
- monero-xmr 3y agoThere are so few public market transactions for commercial buildings that each one is an important data point. An auction as well so there are no backend side deals that would make the value uncertain. This is a good data point.
- femiagbabiaka 3y agoI think the title and other conjecture in the article turned me off, but this makes complete sense! I also saw elsewhere in the thread that SF Bay REITs are performing about this poorly.
- baremetal 3y ago>What a very odd article to come from a think tank, it's titled and reads like something from the NY Post. Do you actually reason about the world this way? Kinda odd.
- femiagbabiaka 3y agoI have the advantage of having standards for the quality and candor things I read. :)
- baremetal 3y agoSure if it is opinion. But what about things that are factual? If they don't fit your standards do you discard them?
- femiagbabiaka 3y agoSomething being true is the bare minimum and has little bearing on what should be done from there. Example: It was a fact that Germany was left in an impossible political and economic situation after WWI, and it was a fact that the leftist government at the time accepted the agreements that led to that impossible situation. But simply saying that leaves out context about who was truly to blame, something that a young war veteran took advantage of in short order. So to avoid being tricked by people telling easy truths, it’s important to be critical of all sources of truths, especially ones with an ideological bent. And during that process it is acceptable to discard partial truths in favor of a search for the complete story.
- deleted 3y ago[deleted]
- jmclnx 3y agoThis article is just referring to just one building. But it does have a point and may be showing a trend to something like "the free market works". Until cities solve the rent crisis, I believe this will happen more and more. I think the only way to solve that is to build and build, but NIMBY people and Companies who love high rent prices seem to do all they can to stop the building of Apartments. But, in SF case, it may be a good thing. Having a city like that in a severe earthquake zone is rather foolish. I can hope people wake up and move to more environmentally stable areas of the US. By that I mean places with low risk of earthquakes, flooding and droughts. They do exist, but no one wants to live in those areas.
- JumpCrisscross 3y ago> Having a city like that in a severe earthquake zone is rather foolish What is this based on? Tokyo, Jakarta, Manila and Los Angeles are more or similarly seismically active as San Francisco [1]. > They do exist, but no one wants to live in those areas Because they’re fundamentally less productive. Natural harbours, fertile soil, striking vistas—each is related to geography, geology and economic potential. Landlocked, sterile, featureless terrain is less productive, less appealing and less valuable than natural port near volcanic soil and new mountains. [1] https://www.worldatlas.com/amp/articles/cities-most-likely-to-be-hit-by-an-earthquake.html https://www.worldatlas.com/amp/articles/cities-most-likely-t...
- brookst 3y agoWhere are these paradisical places with no natural disasters and livable climates?
- ksec 3y agoPurely guessing the 75% is a little dramatic. Basing it on pre-pandemic level to an action off price. So that could be a 30% up from trend "norm" compare to current much lowered market price while auctioning at 20% discount. Still even if it was closer to 40% it is pretty massive in terms of Real Estate. San Francisco, or Silicon Valley / Tech is also the most vocal proponent to everything could be remote should be remote. Along with all the layoffs this could be a perfect storm for office values.
- hn_throwaway_99 3y ago> San Francisco, or Silicon Valley / Tech is also the most vocal proponent to everything could be remote should be remote. Huh? Tech companies have been some of the hardest pushers of returning to the office.
- JumpCrisscross 3y ago> Tech companies have been some of the hardest pushers of returning to the office Because there is even a debate to be had.
- ajkjk 3y agoAre they? Also seems like tech employees have been the biggest proponents of working from home, especially considering how many from the bay moved around the country to work remotely from wherever.
- BurningFrog 3y agoTech companies != Tech employees
- Osiris 3y agoWithin the last year I interviewed at more than a dozen tech companies and they were all remote jobs. The job I accepted had a local office but it’s entirely optional to go there.
- 3y ago
- api 3y agoToo bad we can’t convert any into housing or even have mixed use skyscrapers with residential and office floors. But that would mean building housing in California which is strictly forbidden. Personally I think a mixed use skyscraper with residences, offices, shops, restaurants, etc would be totally cool.
- BurningFrog 3y agoA small city in a building would be awesome, if legalized. Do they exist anywhere else?
- richk449 3y agoYes, in Sim City.
- ben_w 3y agoMixed "residences, offices, shops, restaurants" in a building describes many of the ~6 floor apartment blocks around me, but a city also has industry — workshops, chemical processing, car repairs, factories — and if that's in buildings shared with residential then I've not noticed.
- CoastalCoder 3y agoFrom a building safety perspective, I wonder if meth labs in such apartments is a relevant risk.
- ben_w 3y agoI assume so; without any actual knowledge, and a meagre GCSE grade B in chemistry, my imagination says illegal labs aren't going to have high quality safety audits.
- shagie 3y agoIt's a very relevant risk. https://methinyourhouse.com/meth-fumes-from-the-neighbor/ https://methinyourhouse.com/meth-fumes-from-the-neighbor/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6926576/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6926576/
- idopmstuff 3y agoSF commercial real estate genuinely feels like it's a slow-motion trainwreck that nobody can stop. As leases end, there's just no way that owners will be able to re-rent those buildings at anything close to the same price. That seems like it's going to have two major consequences - when the values on those buildings fall, SF is going to lose a lot if income at a time when the quality of life is already greatly suffering there. On top of that, a lot of those buildings have large loans against them that may well become greater than the value of the buildings. The latter certainly feels like the sort of thing that could ripple through the economy as building owners have to sell off assets to make loan payments.
- naillo 3y agoI would honestly bet it'll be good for the economy overall (a reset to healthy prices) not a ripple effect to cause an overall american crash
- dantheman 3y agoCorrect, it's not the bust that's the problem - it's the boom. The buildings were never really worth that much.
- colinmorelli 3y agoThere’s no “truth” to what a property is worth. It’s worth what the market will pay for it. But regardless of that, whether the values were inflated because of a market flush with cash or not, it doesn’t change the fact that crashes can and do have ripple effects.
- sremani 3y agoCommercial Real Estate is valued based on Cashflow/Income (correct me if I am wrong). San Francisco should look at examples like One AT&T in STL, which was once worth 400 million that got sold for 4 million or so a year ago. https://en.wikipedia.org/wiki/909_Chestnut_Street https://en.wikipedia.org/wiki/909_Chestnut_Street
- jgalt212 3y agoNo mention of COVID, but you'd be hard-pressed to find a big city in the US where COVID hysteria was more intense and longer lived than SF. SF has many compounding problems, but the failure to do any sort of cost / benefit analysis with respect to COVID harsh measures really did the city no favors.
- euix 3y agoI don't know how it was in SF but here in Toronto it got pretty bad and even now large tracts of downtown are devoid, Toronto has an underground pathway system (sort of like a mini-city) that connects a large part of the downtown core its designed so people can get from one building to another without ever going outside in the winter - as you can imagine it got pretty eviscerated during the pandemic. Even now, tons of new condos are going up in the city but the units at the street level (for commercial usage) remain empty even as tenants move in.
- leesalminen 3y agoThe little town in Costa Rica where I live got thousands of new Canadian residents over the past 3 years. The vast majority are from Toronto. The next town over has a huge Quebec expat community.
- ricardobeat 3y ago$100/sqft to make residential projects viable? That’s quite low. They also say conversion would cost $1000/sqft, why would you need a million dollars to renovate < 100m2? None of this adds up to me, appreciate if anyone has hard numbers for this.
- baremetal 3y agoAs a general contractor, I can tell you $100/sf is about what "average" houses get built for in much of the rest of the country.
- sgc 3y agoThat is maybe for the lowest cost, lowest quality houses in the US. See "Average Construction Costs of Single-Family and Multi-Family Residential Buildings Per Square Foot in the U.S." on [1] for costs within major cities, you will see that costs are much higher than that, even if not 1k psf. [1] https://www.togal.ai/blog/the-average-cost-to-build-a-house-in-2022 https://www.togal.ai/blog/the-average-cost-to-build-a-house-...
- baremetal 3y agoCorrect, I wasn't referring to custom homes.
- vlovich123 3y agoI think a huge part of that is getting things up to code because of zoning rules (eg minimum size of apartment, installing kitchens and bathrooms which requires adding plumbing that doesn’t exist, etc etc).
- throwaway173738 3y agoYeah these buildings don’t have bulkheads or risers for plumbing every office. And the entire central air system has to be reworked. If it’s a concrete and steel building this is going to be a monumental undertaking to cut each floor up and run metal for every one of these changes.
- jt2190 3y agoThis is the more interesting part of the article IMO: > The glut of downtown office space, combined with San Francisco’s high housing costs, has led many to envision converting downtown commercial spaces into residential buildings, but not one residential development firm bid on this property. One residential development group that considered a bid was Emerald Fund… [that] ultimately viewed the prospect of a residential conversion as too risky due to the city’s high fees and its low-income housing requirement. Presently, the city requires 23 percent of the units in a large development be set aside for low-to-moderate-income tenants, but this means that developers would need to charge a substantial premium on the market-rate units for the project to pencil out. > … > Developer Eric Tao noted that permitting and other city fees, together with the city’s affordable housing requirements, are so costly that the purchase price of the building would need to drop to less than $100 per square foot… to economically justify a residential conversion. So you really have a market that is “upside down”: Employment (represented by office space demand) is way down, and that in turn softens the market for residential space, and on top of that the numbers just don’t make sense. Edit: I also feel compelled to point out that “low-to-moderate-income” is measured relative to average San Francisco incomes, not to state or national averages. They might still seem very high to outsiders.
- bombcar 3y agoIt’s likely the only way a residential conversion works is if it is literally funded by a non profit or church or government explicitly as low to moderate income only. And those have their own approval and NIMBY problems.
- twelve40 3y ago> too risky due to the city’s high fees and its low-income housing requirement let's jack up the low-income housing requirement so that nobody builds any housing at all :facepalm:
- luc_ 3y agoPerhaps this will assist in catalyzing the transition for SF's economy becoming actually sustainable.
- SeanAnderson 3y agohttps://finance.yahoo.com/quote/HPP/ https://finance.yahoo.com/quote/HPP/ I know it's only tangentially related, but Hudson Pacific is the largest commercial REIT for the San Francisco (and LA) area. They're down 80% on the year and still falling. So, I don't find the 75% devaluation figure to be entirely unreasonable. https://www.kastle.com/wp-content/uploads/2023/05/Kastle_dashboard_separate-2_5.15.jpg https://www.kastle.com/wp-content/uploads/2023/05/Kastle_das... Currently at 44% (down from 100%) workplace occupancy based off of Kastle badge swipe data from pre-pandemic.
- ru552 3y agoOk, hear me out. Take Salesforce tower and convert the floors into shopping/office/restaurant/apartments. One building that I would never have to leave unless I wanted to. I think that would be awesome.
- twelve40 3y agooh, i wish they did that. That area turned out nice and bright, nice to walk by. But somehow it's a dead desert. The massive bus terminal seems empty most of the time. Even the not-nearly-as-grandiose caltrain station has more life around it.
- xnx 3y agoYou've exactly described the plan for Marina City in Chicago circa 1963. https://en.wikipedia.org/wiki/Marina_City https://en.wikipedia.org/wiki/Marina_City This is fitting because downtown Chicago was considered undesirable to live in then.
- spoonjim 3y agoGoing to be wild to see city officials cope with the reduced tax revenues when they’re used to giving homeless people $600 a month and a dog
- neom 3y agoRead this in Bloomberg the other day, thought it was pretty interesting: New York’s Empty Office Buildings Lure Rich Families Hunting Bargains - https://www.bloomberg.com/news/articles/2023-05-09/new-york-s-empty-office-buildings-lure-rich-families-hunting-bargains https://www.bloomberg.com/news/articles/2023-05-09/new-york-... Family offices are buying out institutions in NYC.
- djha-skin 3y agoPost mortem for San Francisco, 5 why's. Tech firms are "abandoning" San Francisco. Why? The costs are not worth the benefits. Why? The benefits off attracting investor money have decreased while costs have steadily increased as San Francisco continued to legislate ways of capitalizing on them. Why? (To pick apart the investor half of that sentence) Investors must no longer than See the benefit of San Francisco. Why? This is the real question. Tech companies simply follow the money. Investors believed in San Francisco, so tech companies followed suit. Something must have changed the outlook of Angel investors in San Francisco. Maybe the interest rate combined with San Francisco's high costs, together with lingering remote-centric investor workflows, have caused investors to seek a new center for tech and investment that isn't so costly. After all, more of their wealth is being captured by the fed than it used to, and they now can't afford to keep both the fed and the local San Francisco authorities in money. San Francisco's ordinances were written with low interest rate and cheap investor money in mind. Maybe a city with cheaper housing and friendlier board will now get a turn. I believe that city might be Austin. Texas has always had a good story around cheap housing, and the tech scene is picking up there by several accounts. San Francisco had momentum, and people wanted to be there because everyone else was there. The pandemic caused a reset. Now investors will converge on a new city, and the decision of which one will now be based on merit instead of momentum.
- armitron 3y agoAustin will be ruined if this continues, property taxes are through the roof due to assessments that make no sense whatsoever and locals are moving out in droves.
- pclmulqdq 3y agoThis is what happened with SF and LA in their respective boom times. There's no reason to believe Austin will be an exception. In fact, prop 13 may have seemed like a rational response to the fact that property values were going up at breakneck speed and forcing locals out.
- bombcar 3y ago
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- RobotToaster 3y agoBig office buildings are basically deprecated at this point, time to figure out how to convert them to residential.
- deleted 3y ago[deleted]
- baremetal 3y agoStructural downturn in commercial real-estate in SF and other big cities. Interest rates made it worse but it isn't primarily cyclical. Too much crime, poor quality of life, and remote work. No one wants to live there except sycophants.
- 29athrowaway 3y agoSF stores have closed because their employees are no longer safe. Conferences are leaving SF. Mostly everyone who starts a family leaves SF. Shoplifting, car break-ins, homelessness, drugs, public defecation, public intoxication, high costs of life. Used needles, empty bottles of alcohol. There is no reason to be in SF anymore. If you think otherwise is because you've lived there so long that you've lost perspective of what you can acquire with whatever you are paying there. The authorities in SF are the encyclopedic definition of learned helplessness.
- derwiki 3y agoQuick access to many museums, libraries, music institutions, and (for the supposed lack of children) great playgrounds. I spent a weekend with the in-laws in San Ramon, and nobody was outside, playgrounds were barren, and everyone seemed to be at the mall. So I guess I’m saying it’s a matter of perspective, and SF certainly isn’t perfect, but I still think there’s significant upside.
- 29athrowaway 3y agoInstead of paying $5000 for a tiny 1 bedroom apartment so you can go to a nice library in SF: Move to a cheaper place, buy the same books you were interested in borrowing brand new, plus bookshelves, plus a high end reading sofa, and perhaps even pay an actual human to read you the books and you will still would have spent less money. And if the book is not for sale, pay for a plane ticket, visit the library in SF and go back. Again, you would have spent less money. Regarding the museum, you could move to a cheaper place, and each time you wanted to visit the museum, simply pay for a plane ticket, visit the museum, go back and still spend less money than living in SF. Regarding the music stuff: move to a cheaper place, hire a musician full time, brand new instruments, a recording studio, and you will still have more money at the end. Do the math. Living in SF is throwing money down the toilet. Have fun drinking $50 fruit juice at "Joe & the juice".
- BurningFrog 3y agoAm I crazy to think Oakland won't be affected nearly as much as SF? We never had much of a boom, and I don't think conditions have deteriorated nearly as much. In part because they were never great to begin with :)
- diogenescynic 3y agoI wouldn't count on that. It's anecdotal, but I used to occasionally visit Oakland and now I avoid it entirely. I see way too many violent crimes in the news and it's just not worth it. There's nothing in Oakland I can't do somewhere else and feel safer.
- BurningFrog 3y agoAll true, but I think Oakland has always had this kind of reputation, while SF only recently fell into it. So I think that's been "priced in" for a long time. My part of Oakland is quite safe, though we have some minor homeless camps.
- flexie 3y agoWhat I find fascinating is that it took so long for this to become reality: Originally, office space was needed for secretaries, typewriters, meeting rooms, desk telephones that were hooked up to a central company number. Eventually office buildings were needed for mainframes, other servers, copy machines, fax machines, printers, desktop computers etc. Offices were truly needed until around 1998-2008 or so. But after that - which is already some 15-25 years ago - most of us worked on a laptop that hooked up to whatever screen was available, and used email, chats and perhaps some collaboration software, and where data storage was in the cloud. Our cell phones were easily connected with office numbers. Lately, we don't need to sign anything physically anymore, and we don't need to write actual checks. Nevertheless, going to the office kept being the preferred working mode, new office buildings kept being built, and rents kept increasing, long after the office wasn't strictly necessary. Only when the pandemic showed management that remote work works, did offices finally come out of fashion. Now, it's hard to imagine that companies will keep the office spaces when their leases expire without asking for large reductions. Often it takes long for new tech and new habits to be adopted.
- diogenescynic 3y agoSo much needs to change for things to go back to anything resembling normal, that I assume it will never happen. Basically everything the SF supervisors, mayors, SFPD, and DAs have done has made the city less safe, less livable, more expensive, more politically hostile, and all of that has led to a downward spiral. Instead of building more housing, they built more commercial real estate. Instead of making BART safer, they offer platitudes and less than useless policies. If you didn't take advantage of the pandemic to get out of San Francisco, I feel like you made a mistake. I love the geography, weather, food, and lots more about San Francisco, but the way it's managed is unaccepted. I have never seen nastier and grosser things than on the streets of San Francisco. The people giving out meth pipes and needles are morons and harm reduction clearly isn't working--overdoses just keep increasing even though the harm reduction people are getting what they want. There are virtually no consequences for selling fentanyl.