Office CRE. The headline reads "Fire Sale: 300mm San Fran Office Tower". Is it a fire sale or a dumpster fire, I get office CRE confused these days. At our recent conference in ATL our own James Armstrong said that LTVs on CRE are irrelevant right now. Cash flow is the only thing that matters. Get your head around these quotes for a second to come to grips with CRE valuations today. "Before the pandemic, San Francisco's California Street was home to some of the world's most valuable commercial real estate. The corridor runs through the heart of the city's financial district and is lined with offices for banks and other companies that help fuel the global tech economy." "One building, a 22-story glass and stone tower at 350 California Street, was worth around $300 million in 2019, according to office broker estimates." "That building now is for sale, with bids due soon. They are expected to come in at about $60 million, commercial real-estate brokers say. That's an 80% decline in value in just four years." #valuations #cre #caprates #credit #risk #office https://lnkd.in/gM9qw4Q3
Ron Oxtal, MAI
1 年
The foolhardy policies of San Francisco are driving away employers and residents. I suspect this value drop is associated with a significant occupancy loss, WFH, as well as higher interest rates and tight lending policies. Funding tenant improvements and leasing commissions becomes a big problem with distressed assets and distressed owners. Whole Foods just closed a one year old “Flagship” store in San Francisco because they could not guarantee employee safety. San Fran and NYC seem to be ground zero for the CRE reckoning.
Parker Leib
1 年
Is there not a massive opportunity to redevelop into Mutilfamily? Am I missing something, Is zoning more of an issue then 220 million dollars. If I had the money seems like it would be a layup. Patrick Roberts thoughts on this?
Jeff Clark
1 年
"Cash flow is the only thing that matters" AMEN
Brian Rossi
1 年
Some great insights on this post and comments…What a difference 1 year meant to that purchase price. And who knows where it would be 1 year from now. Sale of high-vacancy office space is very challenging right now. It requires speed to market, connected networks and sellers who are sober to the current market and economic realities.
Igor Zhizhin
1 年
Critics are loud, but success is always louder. I look forward to seeing what happens five years from now after this is acquired.
Debt coverage and debt to NOI have always been king in my opinion
Hemal Patel
1 年
Insanity. Although I do think those who have the capital to buy and withstand a few years of negative cash flow will benefit tremendously. In the long run, office demand should return to pre pandemic levels.
Partner at PMI Properties. 45 years and 5 cycles in Profitable Real Estate Investment
1 年In the 1990s office buildings values fell 70%. It took 13 years to hit a new peak. But the people that bought the buildings at the low made a lot of money. It did not take much rebound from a 70% average decline. That means some buildings went down more. The City will be forced to adopt adaptive reuse ordinance and give all types of zoning concessions to allow a diverse use of the buildings. In the early 90s--our televisions only had 20 or 30 channels and no one had heard of the internet. You could not lease office space. In addition to residential--uses will spring up that we cannot even image today--SF could become a much larger life science hub. Office buildings can be grouped together and become major universities. After some more and additional suffering--City political views of business and crime will change. Also remember, office buildings differ and different buildings will have different functions and desirability.