April 16, 2009
Growing Commercial Concern (And Residential Parallels)
"Of particular concern for San Francisco is the fact that nearly 75 percent of the Class A - premier - office buildings downtown traded hands in the past four years, according to Tove Nilsen, director of market research at Colliers International. The flurry of activity propelled sales prices to record highs and drove the ratio of rental income to cost to all-time lows.
That might have been acceptable when rents were climbing. But the tumbling economy has emptied 1.1 million square feet of space since the beginning of last year and has pushed rents down by 24 percent, according to Colliers. Meanwhile, leases for about 6 million square feet will come up for renewal this year, as will those for more than 10 million square feet in 2010."
∙ Commercial real estate market softens [SFGate]
∙ Pro Forma Problems: Find Commercial, Replace With Residential? [SocketSite]
∙ Co-opting A Reader’s Comment: Our Commercial Market Decline [SocketSite]
First Published: April 16, 2009 7:15 AM
Comments from "Plugged In" Readers
[N]early 75 percent of the Class A - premier - office buildings downtown traded hands in the past four years
Smart money unloading collateral on dumb money with financing from dumbest money.
Dumb money surrenders collateral to dumbest money, who will unload it at a steep discount... back to smart money.
Posted by: Debtpocalypse at April 16, 2009 8:44 AM
That's why I love recession/depression. It is the process by which productive capital is returned to its rightful owners.
Posted by: LMRiM at April 16, 2009 9:06 AM
Here, here. There's a lot of collateral damage from this recession/depression, but getting the dumb/dumber money out of the game will have been worth it in the long run.
Posted by: rabbits at April 16, 2009 9:35 AM
It is the process by which productive capital is returned to its rightful owners.
... and by which destroyed capital is finally recognized on balance sheets.
Posted by: Debtpocalypse at April 16, 2009 9:41 AM
Does anyone know if the city of SF collects a transfer tax on a foreclosure sale?
Most of the buildings sold in the past few years have had massive leverage (and some had mezz financing on top of that) so most (if not all) will be given back to the lenders.
The state will take a huge property tax hit since many will sell for about half off bubble pricing, but the city may do OK if they collect a transfer tax on every sale.
P.S. Interesting article on office vacacancy yesterday from CoStar:
Posted by: FormerAptBroker at April 16, 2009 9:44 AM
Problem is, the dumb people at the top have been losing *our* money while enriching themselves. If the masters of the universe had taken losing risks with their own money, then I would agree with LMRiM.
The risk/reward/punishment system has intentionally been set-up to be asymetrical, which is why such fooish and large risks were taken in the first place.
Look at the banks...How many of the top people at the biggest banks have lost their jobs? And the TARP plan doesn't inspire a lot of confidence that we are removing the least productive elements from the financial system.
When it's all over, I'm afraid that we will have had a very bad recession without the benefit of returning the money to its rightful owners.
Posted by: SausalitoRes at April 16, 2009 9:48 AM
I'm a much bigger cynic than you, SausalitoRes, but I do agree with all of your factual points.
The average voter is clearly a moron, and understands nothing about economics. Just look at the programs undertaken and advocated over the past 50 years at least.
It's hard to resist the conclusion that the population is as dumb as rocks. The smart hucksters of Wall Street suckered them, in full partnership with the government. Good for the banksters! I would have hoped that the obviousness of what has taken place would have conferred some wisdom on the population. Sadly, that's not the case.
We get the government we deserve. Obama is the best friend the banksters could buy! (So was GWB - it's not totally a partisan thing. It's just that Obama was a smarter choice for the banksters. Because of cult of personality/pc issues, the population is even less willing to question their masters than before.)
Posted by: LMRiM at April 16, 2009 9:56 AM
Good Hollywood guy but that is about it and unfortinately our society foams at the mouth for gossip rags and reality tv these days so it is par for the course. Not sure how anyone could have thought this guy would be good.
Posted by: gowiththeflow at April 16, 2009 11:12 AM
"returned to it's rightful owners". Dude, that's lame! But I appreciate your outward ballsiness, given that you were also in the fix (albeit at a different time) in the hedge fund industry. Almost everyone there makes their real money from fees and bonuses. Yeah, some of their token money is in the fund but that's mostly for show. Good thing you got out, as your former industry just got balljacked in a big way. Manhattan RE in the next few years, anyone?
Posted by: 45yo hipster at April 16, 2009 11:36 AM
"Good thing you got out, as your former industry just got balljacked in a big way."
Do you really think that? I definitely don't expect things to change much (there may be lots of sound and fury, but there will be no real action).
Posted by: Tom at April 16, 2009 12:03 PM
More news about the SF office market today: "Overall San Francisco office market vacancy increased 60 basis points to 13.2% from 12.6% at the start of the year, according to Colliers International. Studley, another brokerage firm, pegs overall vacancy at 18.2%, up 170 basis points from 16.5% at the start of the year."
Posted by: FormerAptBroker at April 16, 2009 1:42 PM
No transfer tax is collected if the transfer is to the debt holder. If the transfer is to a seperate entity of the lender, as is typical, there would be a tax based on gross value without a consideration for the amount of debt. SF is very atypical along these lines. If you consider this, and the fact that transfer tax in SF is, 15x what it is in LA, the City always does fine revenue-wise....and they always manage to spend it all too!
Posted by: sorearm at April 16, 2009 2:20 PM
My father believes what he reads in the New York Times. At one level, can you blame him? I tried to convince him that a room full of twenty-four year olds trading naked shorts was not the reason his portfolio dropped by 40% last fall, but it was a tough fight.
For him, the lesson learned is realizing he shouldn't letting insurance companies sell him expensive crap and gouge him for the rest of his savings. Calling the populace a bunch of dumb bunnies is probably satisfying, but there's only about 100 people with any influence on the direction of the country and unless we find some pictures of them cavorting with farm animals, the influence of the great unwashed on them is zero.
Posted by: DavidQ at April 16, 2009 3:43 PM
As an "Objectivist" LMRiM believes everyone except for the elite (among which he counts himself) is worthless and deserves to be taken. There is no morality. No right or wrong. I wonder when he will be going Galt? But of course, he is merely a financial genius, not really producing anything real or creative. Just shuffling paper assets.
Posted by: bk at April 16, 2009 4:07 PM
LOL, bk, I wish I was a financial "genius". Just another small fry who reads the tea leaves and tries to align his interests with the elite's, that's all.
Posted by: LMRiM at April 16, 2009 4:16 PM