San Francisco's Downtown Core Plummets: Massive Implications for the City's Budget

San Francisco's Downtown Core Plummets: Massive Implications for the City's Budget

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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

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