Workers want to stay remote, prompting an office real estate crisis
SAN FRANCISCO - The owners of the fourth-tallest office tower here - one of whom is Donald Trump - want more time to pay back their loans.
The 52-story carnelian building, 555 California Street, is about 93 percent leased. But many tenants - which include banks like Morgan Stanley and firms like Kirkland & Ellis - will be up for renewal soon in a city where workers have been slow to return to the office. Co-owners Vornado Realty Trust and the Trump Organization have requested more time to pay back the $1.2 billion loan used to purchase the building, according to loan servicer documents.
Like other commercial landlords and lenders in downtowns across the country, 555 California is staring down a major pandemic downturn in the commercial real estate market. Economists warn the situation could portend disaster, risking parts of the banking system, too.
"It's scary," said a finance worker based out of 555 California, regarding plummeting office building valuations in the area. In the more than 20 years she has worked in the building, the woman - who spoke on the condition of anonymity because her employer doesn't allow staff to comment publicly - said she has never seen it so empty.
Since the pandemic, employers - particularly in major cities - have been struggling to get their workers to return to the office, while others have given up and allowed workers to go fully remote. That trend is finally starting to catch up with the owners of office buildings in the form of rising vacancy rates and declining property values.
Earlier this month, real estate data provider Trepp reported that an estimated $270 billion in commercial bank loans are coming due in 2023 - and warned of the potential for defaults. Office delinquencies spiked in May, signaling a "tipping point," according to Manus Clancy, senior managing director...