What A Difference Just A Few Years Make!

It is hard to believe that during the past twelve months at one point the price of a share of First Republic Bank stock was $171!  Today it is $13/share!  Before the pandemic San Francisco office buildings were selling for $800-1,200/rsf and considered among the best investments in the world. From the SF Business Times April 20, 2023  “Right now there’s no such thing as an easy office deal in San Francisco, regardless of what it is, “ said Jeremy Thornton, an executive vice president with Colliers who specializes in debt and equity financing. “I would estimate that probably upwards of 75% of the players in the debt capital market – banks, life insurance companies, you name it, have, to some degree, blackballed office. If you’re going to refinance, it requires some level of cash in from sponsors. It’s in essence doubling down on the San Francisco office market in the current environment and that’s not a prospect that a lot of investment committees right now are looking at very favorable, “ Thornton said. “Every deal is different, but there’s definitely going to be some distress, there are going be to office deals going back to lenders.”  I get asked a lot, when will things improve? When will employers mandate that all their employees return to the office? What will happen to all these vacant office properties? My opinion, it may be years before office workers return to the office in force. Technology has enabled working from home in many cases to be as efficient or more so than spending an hour each way commuting into the office. Study after study shows that many will change jobs if forced to come to the office more than a few days a week, if at all. If you are a skilled tech or finance person even in a recession you will be sought after. What are we going to do with all the vacant office buildings? For the most part, it is too costly to convert most to traditional residential or biotech/lab. Perhaps some may be converted to shared housing, where there are centralized kitchen and restroom/shower facilities, offices are converted to private sleeping quarters,  and a new way of housing the homeless or low-income folks is invented. Over time there will also be teardowns, to make way for new high-rise traditional residential.