Commercial property meltdown

Properties will be dumped onto the market. There will be bargains for those with cash:

About US$1.4 trillion of US commercial property loans are coming due this year and next, according to an estimate earlier this year by the Mortgage Bankers Association. Values for US offices were down 21 per cent in October from a year earlier, according to real estate analytics firm Green Street.

This will put pressure on the regional banks so look out for more bank failures


Right now we are spending on the holidays.

In the new year, the FED can tighten again once or twice over with rate hikes.

We are not done by a long shot.

San Francisco’s office vacancy just hit a new high
Even with this quarter’s banner leasing deals, preliminary data shows office vacancy crept up to nearly 36%, yet another new high. Availability is nearing 40%.

Silicon Valley office vacancies stuck in double digits
A December report from the research arms of Joint Venture Silicon Valley and commercial real estate firm JLL Silicon Valley shows demand for office space in the third quarter of 2023 has been weak, while competition for tenants between landlords and companies subleasing their existing space is increasing.

Silicon Valley office vacancy rate increased to 19.6% at the end of the third quarter in September. That’s a 1.5% increase over the prior quarter and about a 2% increase year over year. The region’s vacancy rate is higher than in New York City at 16.5% and Washington, DC at 19.1%, but remains below San Francisco at 30.4%, Austin’s 21.3% and Boston’s 19.8%…


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This did not age well. I doubt we have another rate hike or two.

I think commercial real estate failures in the new year may see a rise in the yield curve without action by the FED.

San Francisco’s Sluggish Recovery Puts S&P Credit Rating at Risk
The outlook on the city-county’s outstanding general obligation and appropriation debt was cut to negative from stable this week by the ratings company. The weakness in the city’s commercial real estate market and tourism activity were factors that drove the move, S&P said. Adding to the city’s burdens, San Francisco’s budget expenditures outpaced revenue growth in fiscal 2023…

A change in outlook doesn’t necessarily mean that the credit rating will be adjusted.
Deeply discounted office towers have become the norm in San Francisco over the past year, but no recent deal has been as radical as one that closed in the city’s struggling Mid-Market neighborhood this month: An empty 16-story tower traded for just $6.5 million.

The $72 per square foot pricing for the tower at 995 Market St., which anchors the corner at 6th and Market streets, represents a 90% drop in value from when the building last sold in 2016, for roughly $62 million.

With office vacancy in San Francisco estimated at 36.6% four years after the pandemic, there is no shortage of deals to be had in the city. One office broker told the Chronicle last year that almost every office property in the city is “on sale.”