📈 Office commercial real estate reckoning — SF towers go to the banks

“office towers in San Francisco are, that is, some serious toxic debt, 27 percent vacancy rates and growing ... virtually all of the San Francisco downtown is going to be owned by the banks soon ... There's going to be some major fire sales.”

“such a massive amount of redemptions that they had to close redemptions ... we may finally start to see the beginning of the reckoning in commercial real estate, ... the banks could just go crazy and take ownership of these things.”

“So now all of a sudden, the building is underwater. So where does that end up? Well, they default on the debt and the bank ends up owning the building. So then what happens is you end up with all of downtown San Francisco owned by a bunch of banks.”

“But you know who does? Pension funds. That's who owns these office towers. You're talking about pension funds that are three-quarters unfunded, and they may have a lot less funds than they even think they do, because we're about to have a huge reckoning, where all of a sudden these office towers that were supposed to be blue chip, that were supposed to have the best collateral there was in major American cities, now all of a sudden they may not be nearly as valuable as they thought they were.”

“And if they don't own the building, they definitely own the debt. 100% for sure in the fixed income portfolios of all these pension systems are the debt that was used to finance these buildings by the REITs and by the big real estate funds that put those things together.”

“Jason, the best response is send him the thing that Sacks sent, which is the amount of available office space in San Francisco. People are voting companies. Companies are voting with their feet. So it's already, if the quality of life wasn't so poor, they'd stay.”

“So you're going to be sitting on that property for five years, ten years before the market comes back the way that you needed to.”

“It's going up for sale. And they believe, according to the Wall Street Journal, that bids will come in at $60 million, an 80% decline. And we talked about this commercial real estate would have this moment. A lot of the banks, the smaller regional banks, own this debt.”

“So I think we've got not just a huge commercial real estate problem, but it's going to be a big banking problem as basically people stop pretending. Right now they're trying to restructure loans. It's called pretend and extend. You reduce the rate on the loan but add term to it. But that only works for so long. If this keeps going, if the market keeps looking like this, I think we're going to have a real problem. And that will be a problem in the banking system.”

“And we have fiscal instability. We're about to talk about it today, but the home market could implode in the United States. The commercial real estate market has already imploded.”

“It hasn't helped the commercial real estate guys, I don't think. That's why there are still, I think, huge problems in the commercial real estate sector.”

“I know, but the other side of this is the trend, again, there is no doubt oversupply and a problem, particularly in a place like San Francisco, where we're going to see some blowups because nobody wants to, you know, to enter a long-term lease in a city that's under siege.”

“I got a building that's worth about $15 million. It's an office building, okay? There's a $9 million loan on it that is coming up to be refinanced at the end of the year... They agreed to give me $2.4 million out of the nine secured by the building. That's it. They wouldn't roll over the nine.”

“The commercial real estate industry is on its last legs. I think they're starting to throw the keys back to the bank and start forfeiting buildings because they can't refight an attractive rate.”

“The $3 trillion of debt that we just mentioned that's sitting on all the bank's balance sheets is all being held at par. They're not discounting it at all, and they're not marking it as being impaired in any way... there's a real risk in the market that I don't think has been fully accounted for, that we're starting to see the cracks.”

“for San Francisco, I'd say probably half the debt should be written off... there'll be about 20 more that are coming to market that will trade in the next year. It's going to be fire sale after fire sale.”

“I think you could give it to me for zero and I wouldn't bring my team back there.”