San Francisco's Downtown Core Plummets: Massive Implications for the City's Budget
now in San Francisco I recently had the whole reparations thing of 5 million per qualified individual or you know hundreds of billions of dollars towards homelessness and create more housing we got a little thing called a budget deficit happening in San Francisco and one of the main reasons that is happening is because you've got commercial real estate values plummeting you've got a commercial downtown core that is on The Struggle Bus somewhere over 30 percent vacancy and you might say Sean could give zero F's don't really care well yeah you might say that but you've got all this all this Progressive policy that's been put in place that at the street level on top of work from home on top of all these businesses pulling back we don't need all that office space after the pandemic you've got like The Perfect Storm for a massive drop in commercial values not only in San Fran that we're going to cover today but you know Seattle Portland everywhere because everywhere pretty much except like Florida some other Freedom loving States went through that lockdown we need to we need to keep everybody home we need to keep everybody inside have them all breathe on each other and give each other the round all right yeah this is happening in real life this is happening in real life time let's get into it let's see what we got going on here we go lowering downtown San Francisco real estate values could have profound impacts on City budget official says when you've got an official saying yeah our budget it's going to be impacted that's when you know because otherwise they're gonna say nah it's all fine it's all good it's all right we need more money yeah we need more money for this program and this program and this program it's by this reparations thing is just so ridiculous because you flat don't have the budget for it anyway you don't have you're not going to have the budget in San Fran for a lot of things if you've got a 500 million dollar shortfall right hey what are you even doing there around lunchtime on California Street this Thursday downtown San Francisco appeared to be busy and bustling but look a little closer and you'll see the signs all around retail space for lease one red right now roughly 30 percent of all downtown office space is vacant in San Francisco according to data from Coldwell Banker Richard Ellis it was just three percent in 2019 before the pandemic foreign office space was three percent inflation was 1.8 percent and then you've got the press secretary currently saying ah the economy was terrible we've had to get it going when I see these numbers I'm like no things were beautiful back pre-pandemic we've just gone taken it right in the crapper since then literally uh you know there's some stuff going on you got business cycle and you got you know interest rates going to the moon the FED reacting probably late because we were told all this inflation is transitory transitory for years right years so among these vacant offices is 350 California Street a 22 story uh a story tower that once sat on some of the most valuable commercial real estate in the country but now according to the Wall Street Journal the building may be valued at 80 percent less than it was four years ago I have an entire podcast dedicated to this one building the 350 California Street I kind of worked through all the ins and outs if you're new here welcome we've got so many new subscribers it's crazy we're taking on I think 250 a day or something right now we're on a roll we're going solo okay now I already went solo um I rock a mic like a vandal something like something yeah that song excellent song um he's about my age so funny but I dedicated you know entire podcast and what I want to say is you know I'm a real estate appraiser by trade that's my background and then I've kind of morphed into being a managing broker and owner of a residential you know Summit Properties Northwest we got somewhere I don't know 80 90 100 Brokers something like that we're not big we're not small but you know I focus mainly on residential but valuation principles for commercial aren't you know you got an income stream and you use a multiplier and you know you come up with some numbers and that's when you know real estate uh commercial is valued on where whereas with residential a lot of what residential is based on is that amenity appeal I can live there my wife will love the kitchen you know since I'm going to get my wife that kitchen in that house she's gonna help me out know what I'm saying yeah that's the deal right so that's you know it's not based on a it is based on a financial arrangement but it oftentimes has so much more emotion than a big commercial investor coming in I'll take that building and in this case it was a building 350 California Street was valued at 300 million in 2019. that might have been a high valuation whatever say it was 250 realistically because nobody ever undervalues their property we don't know what the appraisal was for the purpose we don't know why that happened we just were having that thrown out as a data point from The Wall Street Journal and so for it to drop down to 60 million they're thinking it's going to go on the market it's going to sell for around 60 million that is a massive drop that's the 80 percent less than it was four years ago so the Wall Street Journal reports that the building was worth more than 300 million in 2019 and now up for sale bits are expected to come in at about 60 million dollars I'm sorry what excuse me yeah that is a huge number I don't care who you are you know what I mean that's a massive number and I'm not trying to bore you with stats and figures but this is the underlying thing that holds a lot of these cities together is their revenue from the downtown core when you've got office building valuations you know values plummeting uh there's less tax dollars to go around for all not only from the sale of those buildings but from all the other businesses that are not there and that's what's you know being reflected in this drop of values is this building is 75 percent vacant vacant you know that is a compared to three percent in 2019. that's three percent is virtually filled non-stop you're always going to have somebody at the end of their lease all right you're gonna have a month turnover and then commercial it's much longer than that because you've got tenant Improvement and just the takedown of space just takes longer right takes longer to turn around whereas you put a house on the market boom done you can get financing quick you know house gets closed in 30 days or less 10 days whatever it might be but you don't have that quick rotation so you're always going to have even in the very best of markets three percent is Stellar it's like in residential real estate having you know housing supply of one month that's basically sold out that's just all the crap that's on the market that isn't selling and if it is on the market super quick boom it gets sold on to the next and that's the residential Market we're in right now is we don't have enough inventory still you got more people whereas in commercial you've got the exact opposite during the pandemic everybody worked from home that could you know they all worked remotely and a lot of big businesses especially in San Fran where you've got the tech you know industry here in Seattle same thing you've got a lot of companies that have you know they're based on software Engineers just I mean in in their blackened you know cubicle they're just banging out cold code just you know going they can do that from home with the right setup you know and that's that's what happened so businesses realized oh maybe we don't need to have all this space Oh hey what are we saving what's our bottom line by not getting all not doing all this rent oh that's a lot hey now all right we'd like to have you guys back in the office three out of five days that's what we're looking at and so all these numbers all of this income that used to be there for the downtown commercial Corps it ain't there anymore um that's gonna leave a mark a lot of people are working from home at least part time and I don't think we're ever going to put that Genie back in the bottle I've literally used that term before right you've probably heard me say that yeah it's um it's a no-go oh hey we don't have to pay all this space office space we can have our people work from home and they're you know they're mostly productive and you read those stories about I never opened his computer up during the whole pandemic well that's not how most of this works right but literally Amazon going back to three out of five days in the office and they are pulling teeth to get that done I am heard nobody wants to go back everybody wants to work at home it's easier it's better you don't have to commute you don't have to be in the grind of traffic I've been in some traffic lately here in Bellevue my seven minute commute home ah took me nine minutes today gosh darn it I need to move yeah so ridiculous first world problems so this comment was a lot of people are working from home at least part time and I don't think we're ever going to put that Genie back in the bottle this is from San Francisco Board of Supervisors president Aaron peskin told ABC News and the reality is that rolls down into the value of Office Buildings yes it does and also businesses have left San Francisco to go elsewhere we at the beginning of the pandemic I did podcast after podcast yeah Elon Musk has taken his business I thought that was great the way he handled that hey uh yeah by the way we're not locking this we're not locking down production of Teslas um it's Friday everybody come into the office we're opening up on Monday and California state of California if you don't like it you can shove it because I'm going to take my business down to Texas that's kind of what he did it's like Elon you are a bad mofo you just doing stuff you know when you're one of the world's wealthiest man you can kind of afford to do that right it's like he just tweets some stuff that's just anybody else tweeted that at three o'clock in the morning you'd be like uh guys on drugs ah guys yeah he's doing something we got some weird stuff coming out or he cranks those emails off you know 2 30 in the morning if you ever get an email from somebody in the 2 30 in the morning you gotta kind of wonder what's up right yeah took a big nap you know the day before you just couldn't go to sleep yeah right the sale of 350 California Street Building could set the rate for other commercial real estate in the area could will because it'll be a piece of data will that pizza is this an outlier you know your rail the data got your high points your low points you've got these outliers right I mean my statistics is not I am no genius but I was I was able to get through that was one of the some of the few business math courses I was able to do okay with the whole business calculus right over my head I was like what in the f is this I have no idea what you're talking about I got the credits but then I never got the degree just couldn't really care less so sale of 350 California Street Building could set the rate for other commercial real estate in the area in the form of being a comparable sale is this a distress sale not really you don't have a ownership in default that I know of the building it needs some work yeah but that doesn't make it a distressed sale it's just a condition of the property that's reflected in the valuation right paskin said the lower value of these buildings will have a big fiscal impact on the city and I think it already is these are two geese that have laid the golden eggs for San Francisco number one the tourum in the tourism industry that is rebounding um yeah you know I keep hearing about that here in Seattle oh we've got more people coming here than ever and I'm always like I wonder what they think these tourists coming from out of town and seeing certain parts of Seattle it's like and our mayor has done a great job cleaning up kind of those touristy areas the downtown because of all the businesses but it's just basically taking the homeless that we sanctioned yeah go ahead and live wherever the F you want taking those folks and it's you know press them out into a little bit more like the urban Suburban neighborhoods you know what I mean just outside of your Urban core that's where all the homeless have gone so it's just you know whack-a-mole dose folks so other areas of the city look even worse because they're getting this concentration and that's a lot of what you're you're seeing Jonathan Cho uh reporter here in in Seattle he goes out with his uh he's with The Discovery Institute goes out with his cell phone and just literally records and oftentimes gets chased by nut jobs on drugs with a hatchet with a bat with a knife he's got those all documented and he literally just goes out walks around and Records stuff and everybody says Ah he's a right winger and he's agitating people and that's what you get well you should be able to walk on a public Street and not be chased by some douchebag addict with a knife and not have the police show up right we don't have enough cops in Seattle so that's the reality you know this is just it's kind of what you get but the tourism industry that's rebounding in San Francisco all right we'll give you that one and the other was the downtown office economy and that is not going so Stellar 300 million 60 million that's a drop that's a drop and that one is in more trouble and it's gonna come with profound Financial impacts to San Francisco governments tax base he explained and that is inevitable inevitable and that is inevitable for every city but more so the cities they basically said hey you know what um homeless anywhere you want it's okay you know drugs it's okay and we've got that real drug issue because businesses and tourism companies bringing big conventions to town they don't really want to deal with that if they've got an option in another city so you've got that going on and the fact that a lot of these cities have a big Tech presence Seattle San Fran big Tech presence Portland's even got some of that those people are working remotely so you've got all these you know things happening that are going sideways for the commercial real estate market and you're going to have some slashes to budgets what does that look like peskin says this year City budget is projected to be slashed by a quarter of a billion dollars 250 million dollars all right yeah well guys tighten your belts because or we're gonna need it on this bad boy you're gonna have all kinds of entities get cut and next year by another half billion half billion are we going to have a bailout of commercial are we just gonna have bailout after bailout after bailout of all these entities that'll go sideways I mean it wouldn't shock me it wouldn't shock me because not all of these entities that have these buildings can wait until office space recovers whatever that is and it may never recover it may never recover because we figured out how to work around it ah you just get all your worker bees working from you know home yeah save their commute time they're more productive they're happier they're getting more laundry done so we're going to have to live within our means this is a politician this is the supervisor board president speaking we're gonna have to live within our means what you're gonna do what how are you gonna do that we will balance our budget on time oh okay within the revenues we expect to get and it's going to come with hits to city services man that is half a billion that's 500 million okay you're gonna have to whack some product projects right how about that 5 million in reparations that whole thing is just ixnade that's out of there there's going to be no money for tomfoolery like that right it's just not you throw out those numbers all day long and guess what ain't happening not gonna happen and none of that is going to be fun or Pleasant politician goes on to say we're going to have a lot of tough decisions to make between the board and the mayor oh boy and this not just Sam Fran either right Seattle same deal because you know how budgets work it's based on prior income you're going to have the income the decisions to shut down the city it's going to fall on Governors Governors that shut stuff down well moving forward you can see how we went from quarter million to 500 million that's because all of the decisions that were made during the pandemic all of the policies that are happening that whole work from home thing yeah that's it's coming to Roost coming home to roost we're sitting here looking at it and going oh yeah yeah so it's not you know some of this is liberal policy of course but a lot of this is the work from home deal and the work from home deal impacts the West Coast super hard because that's where we've got all the tech right get all the tech you might you've got some tech in the midwest a little bit on the East Coast but not nearly as much as like San Francisco and Seattle Redmond so what's interesting here in Redmond where where I sit I said I'm literally on Bel Red Road my office address if you look it up is Bel Red Road it means it goes from Bellevue to Redmond Bel Red I know what we do wacky stuff here in Seattle area but we've got these um back in the 80s Microsoft started the Tech campus they have literally got campus after campus after campus for their employees and they aren't in the downtown never really have been Amazon different story they've got a bunch of buildings they got a bunch of buildings here in Bellevue and so many of those buildings they have pulled back from either building out or finishing out maybe they get the shell up you know get the roof on to get everything all weathered in and then the inside is just basically just steel beams and you know partially finished floors because they don't know what they're going to do final build out they don't know configurations and if Amazon isn't going to take it down and Amazon has said we're not going to take down a bunch of this space because they don't know moving forward how much commercial office space they really need so you know all those businesses get impacted not only the ones renting space but all the other ones in the downtown core and it just has this effect after a while of less Revenue less going on less foot traffic don't need to go to the deli because I'm not working in you know downtown Seattle more than three days a week maybe I'm not working there at all you've got all of that going on impacting the downtown core and so that's that's ultimately what we're seeing here reflected in you know what we're estimating to be the budget cuts and moving forward yeah so all this other nonsense talk about reparations we need 500 billion dollars for housing yeah that's all going to get put on the microscope and all right what's the Bare Bones you need to operate and not have the city absolutely fall apart that's what we're going to be working on moving forward it's going to be those kind of budgetary discussions not all right yeah we got five million bucks for XYZ number of people you know 14 trillion dollars we're just gonna pay that out not happening not happening so when I see people talking about the whole reparations thing I'm like how's that going to get funded you know you're going to float a bond to make that happen I don't think so I'm gonna create some pack fund you know now we're gonna pay out no I don't think so you get some real budget concerns and it has to do with the lack of Demand right now for office space in the downtown core that are all ready suffering we know it it's here so you want to make sure that you subscribe to this channel hit that notification Bell because we're going to be talking about this a bunch and why we're talking about it this is what's happening this is the deal stay tuned thanks in advance for subscribing we'll catch you on the next one bye for now foreign [Music]
2023-05-10 03:57
