China’s Capital Controls & Crackdown on Conglomerates, the US Shift to Working from Home, and San Francisco’s Historic Office Glut Leave Big Ulcer

Trends converged on the mega-construction project Oceanwide Center in San Francisco.

By Wolf Richter for WOLF STREET.

Office construction projects all over the US are facing a new reality: the shift to working remotely and the accompanying office glut. Now, 15 months into the Pandemic, the rate of office occupancy, as measured by workers showing up at the office, remains dismally low.

Office occupancy in the week through May 19 was only 28.1% on average in the 10 largest metros from where it had been before the Pandemic, Kastle Systems, whose electronic access systems are installed in thousands of office buildings in the US, reported today.

Meaning, the number of office workers entering buildings equipped with Kastle access systems is still down by 71.9% from pre-Pandemic levels and hasn’t significantly risen since November last year:

San Francisco has the lowest office occupancy rate of the 10 metros, at 16.2% of pre-Pandemic levels. The Austin metro has the highest occupancy rate at 43.4% of pre-Pandemic levels, which is still dreadfully low:

Office occupancy will gradually improve. But to what extent?

“Flexibility” is now a key word for companies, and they have outlined work models that range from near-total work-from-home to hybrid plans that allow for some work-from-home. Many of the companies have downwardly revised their office footprint requirements – hence the huge amount of vacant office space that companies, such as Airbnb, have now put on the sublease market.

And San Francisco, with its large portion of tech workers, is on the forefront of the shift to working remotely, and even its biggest employers, such as Salesforce and Uber, have jumped on the hybrid bandwagon and have put vacant office space on the sublease market. Now, San Francisco has a historic office glut, with nearly 24% of its total office space available for lease.

Which makes the future of the Oceanwide Center, the Chinese mega-construction project on First Street and Mission Street, across the intersection from the Salesforce Tower, that much more troubled.

Property developer Oceanwide, a division of Chinese conglomerate Oceanwide Holdings Co. Ltd., acquired the project in 2015 and started construction in 2016. The plans call for two towers, 2 million square feet of space, and a mythical price tag of $1.6 billion.

But in 2019, construction was halted on the shorter of the two towers, the 54-story tower on Mission Street, when it reached grade, amid doubts about its commercial viability. It was supposed to contain condos and a Waldorf Astoria.

In 2020, construction was halted on the taller tower, located at 50 First Street, which was supposed to become the second tallest tower in San Francisco, after the Salesforce Tower. It was going to include 34 floors of office space, 19 floors of condos, and a six-story-tall open-air space at the bottom for the public.

After funding problems, the project got tangled up in mechanics liens and lawsuits from subcontractors and the general contractor, alleging they hadn’t been paid. The general contractor has withdrawn from the project.

The big ulcer.

And this is the view of what is supposed to become the second tallest tower in San Francisco, four-and-a-half years after groundbreaking. The shiny object in the center background is the Salesforce Tower. But at least the huge holes have been filled (photo by Wolf Richter, May 24, 2021):

In January 2020, Oceanwide disclosed in a regulatory filing in China that it had made a deal to sell the project to SPF Capital International, an affiliate of Beijing-based SPF Group, for $1 billion, and that it would take a $276 million loss on the $1 billion sale. After that deal fell through, another Chinese outfit, Hony Capital stepped in as buyer. But after several missed deadlines, that deal also failed to close.

This is not just a temporary pause in construction. Nearly all construction equipment is gone. At the moment, there is only one crane left on the project. The other crane was taken down and removed.

But someone made money on the project. The land was acquired out of bankruptcy court in 2013 by TMG Partners and Northwood Investors for $122 million. They hired architects and came up with a new design, and in 2015 sold the whole kit and caboodle to the Chinese conglomerate Oceanwide Holdings for $296 million.

Shortly after construction began in 2016, China began tightening capital outflows in a series of regulations that culminated in August 2019 with the imposition of new capital controls that specifically targeted investments by Chinese entities in foreign real estate projects.

Chinese authorities were also cracking down on the domestic and foreign adventures of highly-indebted conglomerates, such as HNA, which in early 2021 entered bankruptcy in China, and Anbang, which was taken over by the Chinese state.

Given the gloom of the San Francisco office market, and the legal issues that the project is now tangled up in, and the apparently hopeless financial situation, and the developer’s difficulties in China, it appears likely that San Franciscans will have to live with this ulcer of a dead construction site “indefinitely,” as they say.

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  114 comments for “China’s Capital Controls & Crackdown on Conglomerates, the US Shift to Working from Home, and San Francisco’s Historic Office Glut Leave Big Ulcer

  1. David G LA says:

    Did the City obtain a performance bond? Time to cash that in. Build some homeless shelters with the proceeds.

    • shandy says:

      Working from home was so last year it’s hard to keep in that loop.
      This economy is done for as it is toast.
      Why rehash the repetitive observations?

    • gerry says:

      Oceanside Center will probably be built, just way behind schedule. In Atlantic City, the Revel Casino was finally built, all the busted windows repaired and then the casino sold for chump change. After two bankruptcies, Revel is now the Ocean Casino Resort as of 2018. A $2 billion loss to the original investors. And the casino is still a money pit, for all the talk about the gambling business there now improving with Pandemic restrictions being lifted. From the outside, Ocean Casino looks great. Just like those San Francisco city center high rise office buildings in your photo. The photo you made of the wooden power pole outside your headquarters represents the real world: wood rotting away at the top, a transformer, bundles of thick wires and other equipment shoehorned at the top of the pole.

  2. David Hall says:

    From the Washington Post, 5/24/21:

    “ Biden administration moves toward making the pandemic work-from-home experiment permanent for many federal workers”

    • Apple says:

      I can’t even imagine how much money the Federal government spends on building leases in the DC area.

      • Cas127 says:

        The G *never* stops spending.

        1) No spending would mean no kickbacks/payoffs.

        2) No spending would mean no votes bought.

        3) No spending would mean no way to phony up fixes for GDP shortfalls.

        The sun will burn out before DC voluntarily agrees to spending cuts.

        • Apple says:

          The economy would collapse if the government stopped spending. It’s 40% of the GDP.

        • Swamp Creature says:

          When the Weimer hyperinflation was stopped in the end of 1923 a lot of public worker freeloaders were let go and salaries were cut. The new currency was introduced and inflation was stopped in its tracts. We need to do the same here and now.

        • Harrold says:

          Freeloaders, what was that the code word for in 1920’s Germany?

      • KGC says:

        The last survey I saw showed over 600,000 individual properties on the Federal Gov’t register. The GSA routinely sells “excess” property. But I truly believe no one actually has a true count of what property is owned by the Feds.

        This is a massively political issue. Just look at the problems with the military when they try to close or consolidate bases and other properties under their control. There’s no other justification for the East Coast having more than three times as many military facilities than the West Coast other than they have that many more States and Senators fighting not to lose that pork.

        Just imagine the cost of maintaining all of those 600,000 properties.

        • josap says:

          Did the report break out the uses of the buildings? I think many of them are post offices.

      • David Hall says:

        The Pentagon is the largest office building in the world. The government leases many square feet of office space in the DC metro area. There are also government contractors, venders, lobbyists etc.

    • Swamp Creature says:

      DH

      This will never work

      Much of the Federal Workforce is an illusion. It’s mostly contractors. When I was there working 8 to 5, most of them did not do any work while supposidly on duty. Smoking breaks and banker’s hours were the norm. I’d hate to see what they would do working from home with no supervision.

      • Scott says:

        I totally agree. I think they are all task masters who put work out to bid for contractors who do all the actual work under their direction. Such an incredible waste of capital.

      • NBay says:

        Isn’t “General Government Bashing” great fun? Almost a sport to some, and seemingly great fun, too.

        But as I recall the screw-ups in this article were all of the Private Enterprise nature.

        Great detailed and informative work, that “Kastle Index” is also good.

        If Wolf got close enough to photograph the “ulcer left behind”, maybe the parquet (sp?) and skateboard types can at least make some good use of it.

    • K says:

      I do agree with the commenters that say that will never work with today’s limited technology and all of the keeping of forms and records on paper. Maybe someday, if we are all linked with images via multiple monitors, so we can see and keep an eye on each other, like zoom calls, and everything is scanned or never was printed out, then it would work.

      The most interesting trend is what is going on re China, which may be right to worry. The latest news indicate that there will be a more severe trade war, at minimum. India, the USA, Brazil, the UK, Italy, and many other countries hostile to China that have “coincidentally” suffered the most may decide to retaliate once that is practical.

      To do that, they would have to create factories in other countries like India or Mexico for essential products. Then the allies could raise tariffs in steps until China cannot afford to compete with those factories, e.g., in India or Mexico.

      The CCP cannot bail out every one of its larger companies. In this case, the very size of their companies will make the saying “the bigger they are the harder they fall” true. I predict that is coming later this year or in 2022. See e.g., “How China locked down internally for COVID-19, but pushed foreign travel” in the Economic Times of the India times. See “Public health expert says ‘zero doubt’ most U.S. virus deaths were avoidable” in PBS.

      If any of you hold index funds, which have secretly been adding Chinese companies (with concealed, probably Exxon-type finances) to the investments that pension and other funds hold in following those indexes, get out now! Invest in tulips or cryptos or other less risky gambles if you must burn your money in nutty “investments!”

  3. WES says:

    I wonder how long before the homeless takeover the dead construction site and finish it?

  4. Frank says:

    Same thing happened to the Japanese investors in the 80’s I think. Now China’s turn.
    The office glut is just what is needed to shake thinks up, lower costs, create new opportunities for the next generation, etc. Capitalism as work. Let’s hope the gov does not intervene and interrupt this painful, but necessary adjustment.

  5. MarMar says:

    This project’s troubles sound like a rare spot of good news for commercial landlords in downtown SF

  6. tom19 says:

    Another chart that helps to explain the absolute buying frenzy out here in flyover. No inventory, lumber prices…even the beavers are now hoarding. No charging stations for the telsa’s, and still they come.
    Our state bird is starting to hatch. Along with the high tick population, it may be enough to turn the horde back.
    Will be interesting to see what happens if wfh is reduced/ended.
    I guess we will have a few more bnb’s.

    • Heinz says:

      Also here in another part of the Great Flyover section of USA.

      How much migration from blue states like California etc. is ending up here is difficult to ascertain, since the blue expats don’t wear buttons or signs.

      But my guess is that the future of ‘work from home anywhere’ and how many blues actually stick around : it is not a slam dunk it will have any staying power as a permanent trend.

      Running away from liberal-run cities, beautiful mountains, recreational opportunities, and ocean beaches to relatively quiet and mundane countrysides will be less than ideal after a while, when reality sets in. Challenging weather with four seasons, lack of the amenities found in big cities, and dealing with septic tanks, propane fuel, long drives to get groceries and gas, wild critters, cow farts, biting insects, and dicey internet reception will make many of them think twice.

      I will be first to wish them happy journey back to point of origination.

      • DanR says:

        Why wouldn’t you, or at least your proverbial children, want to go to California yourself to avoid all of the problems of where you live?

        • Heinz says:

          We are used to them, and are tough enough to deal with.

        • NBay says:

          Heinz

          You sound like you fancy yourself as someone out of “The Revenant”, which I’m sure you are, compared to CA sissy snowflakes like me.

          Don’t worry so much, I’m sure they will all be gone as soon as they confront the hazards of life on the frontier.

      • 91B20 1stCav (AUS) says:

        Heinz-strangely enough (other than wet/dry being the two seasons in our area, and parts of CA DO have four seasons) we have ALL of the issues you mention in our NorCal rural area. CA is a big (San Bernadino County is larger than Rhode Island, for example), geographically-diverse place. (it appears the longtime belief of Midwest/Easterners that ‘as seen on TV’-LA is the sum total of the area is still alive and well…).

        Remember-throwing rocks at a place that suffers from its popularity
        can get folks looking at YOU, then figuring that maybe your area’s closer to heaven-can you really be surprised when auslanders decide to move there, more than willing to get skinned by the locals on property because they find it relatively cheap, then find that that results in ongoing cost of living increases and cultural changes? Rediscuss in five years.

        As to your final sentence, have felt the same of immigrants to CA for many decades (and i don’t recall any rock-throwing), many, no doubt, from wherever you are-it’s just been a long, long time coming…

        may we all find a better day.

  7. MiTurn says:

    “it appears likely that San Franciscans will have to live with this ulcer of a dead construction site “indefinitely,” as they say.”

    A not so merry-Chinese-no-go-round.

    • Seneca’s Cliff says:

      I can imagine in the future a Chinese version of the James Bond movie franchise. The hero arrives in the collapsed rogue state of America via minisub. At this point the U.S. has become a security threat to the rest of the world as the fallen chiefs of the Fed and financial racket have taken to peddling old Nukes and dangerous derivatives. Via a hidden trap door he enters Chinese intelligence headquarters hidden beneath the half completed skyscraper in downtown San Francisco. There are many levels with hundreds of busy techs working away to keep the world safe. “Bond” gets his briefing and heads out to save the world from the latest plot by the “Goldman Gang”. He is guided through the dystopian landscape by members of the resistance who aim to return the US to its former values of hard work, sound money and honest dealing. For some reason the resistance calls themselves the “Wolfies”.

      • Shells says:

        Maybe he will be from the southwest

      • NBay says:

        Really good creative writing Seneca!
        Although I’m not sure about the “heroic cult” last sentence…but maybe Wolf got a kick out of it.

  8. Anthony A. says:

    So what we have here is a partially started construction project with the land/improvements owned by Oceanwide and mechanics liens attached to the real estate. Correct?

    I would guess that the City can foreclose on this RE for non-payment of back taxes (if they are not being paid). This could turn out to be a new “pet project” for one of the City’s leaders. Maybe they can turn it into a low income housing facility or mount a statue of the Mayor on it (with a suitably constructed base.

    SF leaders should look at this as an “opportunity” rather than an “eyesore”.

    • Mikey says:

      It should be a gold statue of course with citizens that are not wealthy supplying the gold voluntarily or banned from internet

      • Degobah Smith says:

        Or, maybe just gold plate the existing metal framework and leave it be as a monument to… take your pick in this circus of an economy. Just sayin’.

    • polecat says:

      Ahh yessss … a location fit for a Ziggurat of Wokeness!

      What’s not to lov——, er, hate.

      • NBay says:

        Hey, Great News, I don’t prefer snowflake to woke anymore! I discovered my all time favorite racing team (since Can Am days), McLaren, is headquartered in Woking, UK. I now feel…..”woke”!
        (I’m easily pleased)

        • 91B20 1stCav (AUS) says:

          NBay-(Wolf-i’m way offtrack here, but the initial post has aged)-went to the first CanAm at Laguna on the old 1.9+ mile track in 1965. Parnelli Jones chased me out of his paddock spot while i was taking a photo of his T-70 Lola and asking for an autograph. Chatted and photographed McLaren and Amon and their red Mk2’s one spot over-lovely gentlemen both (still have the ‘instamatic’ photo of Bruce signing my program…).

          Although a Gurney fan, first, with you in ‘Wokingness’,

          may we all find a better day.

  9. MonkeyBusiness says:

    The upside is we’ll get it back for almost free in the end. The city can levy a special tax for this ulcer.

  10. Nathan Dumbrowski says:

    My company based in Texas has started to return to the office. But there was a big rain storm coming in from the Gulf of Mexico. So announcements were sent out to work from home today. HR and Leaders didn’t want people to have to travel during the storm. As noted this is looking to be a lot like a Hybrid requirement for office space and your home office to be ready at the direction of management. So somewhere in the middle that of course is in favor of the company

  11. Tom Stone says:

    It’s a nice location, which means it will be built when it reaches a clearing price, likely as part of a Bankruptcy.
    How long will it sit?
    2 years would be quick, 4-5 years is more likely.

    • Felix_47 says:

      I could see a truncated tower and the beauty to the situation is that since it is not built yet the conversion to low income apartments will be relatively simple as opposed to repurposing an already built office structure. It looks like the foundations are already complete and that is a very expensive part. There is a huge demand for government subsidized low income housing in San Francisco and throughout California and Mexico. The service workers in the Bay area are commuting vast distances to get to work. By eliminating their commute we will cut CO2 production dramatically and improve traffic. Let us hope the state, federal and local government can pool resources and build housing for the poor that can rent or be sold to them at sub market rates.

      • Robert says:

        I do NOT understand why empty office buildings can not be readily converted to residential

        • Wolf Richter says:

          Robert,

          They can. It’s just very expensive if the building is already built.

          If the building isn’t built, it will have to be permitted and redesigned for residential use.

          At the stage where the Oceanwide project is, it would be possible to do, but first the developer will have to go bankrupt, and a new developer would have to buy the project for cents on the dollar out of bankruptcy court. Then the cost basis for the new guy would be much lower, and the project could be pulled off.

      • dozethatfreakintower says:

        Why would ANYONE want to live in a freakin’ tower? No yard. Windows don’t open. neighbors right THERE. Aweful.
        It’s a lot cheaper to build a mobile home or mobile office than it is these stupid ugly towers.
        These towers are yesterdays “power” trophies that showed to “the whole wide world” that your city or country was competing to be modern. What eva. World trade center, Sears tower, what ever they have in London, What ever they’ve built in the Arab countries…… (yawn) oh so boring. They certain aren’t suitable to work in or live in.

        • Wolf Richter says:

          dozethatfreakintower,

          I love living up high with gorgeous views, balconies, a breeze, etc. I’d hate to have a yard. What am I going to do with a friggin yard? I’d hate to look out the window and see nothing but the neighbors house or some trees and a fence and a street. Ugh.

          So there you have it. Thank God we all like something different, or else we’d all be packed into the same place… Oh wait…

        • NBay says:

          Doze,
          You have me trying to visualize a gorgeous V-A-S-T thousands of homes subdivision in Beaty NV, right next to Fran’s Star Ranch and the Yolo Twin Beech that we crashed and left there after I was at Madam Fran’s jump meet in ’77…..still trying……

    • MCH says:

      Parking lot. Cause let’s face it, that’s what SF needs. Especially in that area.

  12. MarkinSF says:

    Per Bloomberg, $1.3T in Chinese corporate debt maturing in next 12 months. How much can they roll over & how much will be forgiven?

  13. Outwest says:

    Before long, it will be hip to work in a highrise…the excitement, the opportunity…this is a lull that will be filled with the young and the ambitious among us. That’s the way it works.

  14. bungee says:

    coulda been worse… they might have finished it.

    what ever happened to the caltrans tunnel thats supposed to pop out in chinatown at like, stockton and jackson?

    • Anon1970 says:

      I thought it was a San Francisco Municipal Railway tunnel. It appears to be completed but the pandemic has resulted in a suspension of Muni Metro (subway) service, which was replaced by above ground buses.

    • dozethatfreakintower says:

      Good point. The last thing a sketchy peninsula like SanFrancisco with an active earthquake fault running underneath it needs is another LEANING millenium tower. The place sank 18 freakin INCHES and is tilted. 18 inches is the equivalent of 3 stair steps.

      Society has to ditch these stupid trophy towers of last years “power grabbing entrepreneurs” They are an ugly blight on the V-A-S-T landscape in the U.S. , but really any country. It takes too much energy to build them and then after 20 years when they are hopelessly out of trend, it takes dynamite to flatten them and we’re left dealing with all the cement and asbestos dust. It’s just stupid.

      I would never step foot in a building over 5 stories. It’s obnoxious and dangerous.

      • Wolf Richter says:

        dozethatfreakintower,

        “I would never step foot in a building over 5 stories. It’s obnoxious and dangerous.”

        Have you thought about getting some help?

        :-]

      • NBay says:

        The height doesn’t really matter, as it’s always the last fraction of an inch that gets ya.

  15. Mark says:

    A chinese built high rise in an earthquake zone. That should scare people.

  16. Sit23 says:

    I asked a bloke I met once what he did for a living. He said he was the third developer. I asked what that meant. He said the first one starts the project, gets a portion of the work done, goes broke. The project is sold at a massive discount, which of course involves paying none of the subbies. The second guy does the same, and my new friend finished it, having bought a half to two thirds finished project at a massive discount. That is the only way to get a lot of projects done, he reckoned, as the initial pricing of a lot of real estate projects is just ridiculously unrealistic. Note that the subbies were unpaid twice. He said it has worked well so far!

    • topcat says:

      when do the subbies go out of business?

    • rhodium says:

      Clients in need of construction services are usually unreasonable and set unrealistic expectations. Contractors accept unrealistic expectations because they just want the contract and then they try to get it done under grossly optimistic outlooks. Inevitably mistakes are made due to human fallibility at all levels and projects run over budget and over schedule. The blame game ensues and then everyone gets pissed off and angry at the end. That basically sums up the vast majority of larger construction projects.

      Yes, and if a contractor gets suckered into a poorly planned project that they failed to anticipate would be a disaster, that can often result in cutting one’s losses by leaving the project. I was often struck by how little planning and shitty incomplete or contradictory design work would be the norm. I only guessed that no one wanted to pay skilled professionals to give a full and thoroughly reviewed design beforehand due to cost. Next thing you know someone unqualified is being asked to make design build decisions on the fly, but most of the time they don’t want to get stuck with the blame if someone else doesn’t like it, not to mention doing anything outside of the contract is risky but that won’t stop clients from incessantly asking. There’s often a lot of sticking heads in the sand pretending there aren’t problems for as long as possible. General contractors start ripping their hair out over all the change orders they have to submit. Interestingly, subcontractors often bid at a level they know will cause them to lose money if everything goes smoothly, but they actually count on the job having planning problems so that they can make money off of change orders. It seems screwy but if it wasn’t for general incompetence, subcontractors would be much more likely to compete each other out of business.

      • Beardawg says:

        rhodium

        Sounds like you are, or have been in the developer / contractor biz.

        I am not, but as a municipal Risk MGR in a former life, I was peripherally involved in large muni projects with private developers / contractors, and nothing ever came in at projected cost. We were the gubment, so we just passed the over-runs to the taxpayers.

        When I look at tourist areas in Mexico, you see shells of high rise buildings which sometimes it for years for the reasons you have outlined.

      • NBay says:

        One of the reasons all construction workers hate architects.

  17. Micheal Engel says:

    1) CRM HQ is not part of SF RE glut. CRM HQ is a Johnstown PA US Steel
    rusty skeleton.
    2) As long as WTI was trending down since 2008, with lower highs
    and lower lows, the Fed could print as much as they want.
    3) As long as there is overcapacity in the energy sector, steel overcapacity, R/R, airplanes… JP could print as much as he wants.
    4) There is overcapacity in office buildings , malls, shopping ctr, medical centers, colleges, TV & media networks… all bank’s zombie assets.
    5) The dollar was humbled by the Fed tsunami of money. That preserve the overcapacity and protected us from a real inflation.
    7) When US dollar will bounce backup, when unemployment benefit expire, when forbearance is over, the zombies overcapacity will be shrunk.
    8) SPX weekly have an option of a Viking Horn.
    9) The Horn will stab the global overcapacity, creating shortages.

  18. Michael Gorback says:

    Can’t Dr Fauci order everyone to return to the office?

  19. Swamp Creature says:

    This is great news. Jamie Dimond is right on the mark. Time for everyone to stop freeloading and get back to work. No more remote “Office Monsters” conducting teleconference meetings while walking their dogs.

  20. YuShan says:

    Who are going to be the biggest bag holders? Pensionfunds? Taxpayers?

  21. joe2 says:

    Look, with 1% owning all the assets they can buy whatever they want. Bezos is buying MGM.
    House Rothschild – I legally print fiat money from the air and outbid you poor working saps for all your real stuff.
    Maybe waiting for prices to come down as they see it as a game – buy the mostest for the leastest.
    But buy it they will as they get out of virtual assets into physical assets before fiat and virtual stuff collapses.
    What will you own? Or will you own nothing and be happy.

    • Harrold says:

      the 1% already own MGM.

      Amazon is buying MGM from their private equity owners ( Anchorage Capital, Highland Capital Partners, Davidson, etc).

    • dozethatfreakintower says:

      There is freedom in Not owning “anything”

      No mortgages, property taxes, HoA fees, HoA headaches, nothing to clean, no cracked basements/foundations to spend big money fixing, no troubled neighbors to put up with, Nothing deteriorating and needing replacement, no board to deal with…

      Just be free as a bird, deer, raccoon, squirrel, or a whale in the ocean.

  22. polistra says:

    Given that this is SF, I first assumed the object in the foreground of the picture was Art, not construction equipment.

    And that leads to an idea. Redefine the vacant towers as Installation Art, wrap montaged images of them in NFTs, and securitize them all over the world. Who says real estate has to be local?

  23. LibDis says:

    This is definitely regional and business model specific.

    I have a buddy with a large private coworking space here in Florida and at 100% occupancy he is adding 11 more private offices to meet demand. He is not an ridiculously expensive franchise, etc, so he keeps costs low and prices below the competition.

    I have never understood the large competitors model. For a business that is suppose to target the small entrepreneur and startups, who the hell can afford those prices?

    Build a smart business, create a good product and price it fairly.

    There is no glut, at least in his target market, here……

    • Petunia says:

      Down the street from me in Florida, 10 years ago, a small business condo development was built. They had a sign up the entire time it was going up. By the time it was built, it had already sold out.

      Going forward, if you are running a small business, you will have to own your business space to survive. That is one of the lessons of the current crisis.

      I recently read in the New Orleans news that homes zoned commercial/residential, in formally undesirable areas, are selling out because you can run a small business from them. Expect to see this in other areas as well. Any business with small margins will have to own space to survive in the future.

      • Root Farmer says:

        Petunia,

        Great observation. I think you are on the money with the need for small margin business to own their location. Rentiers just keep squeezing.

      • Trailer Trash says:

        “you can run a small business from them”

        What’s old is new again. Fifty years ago many professionals worked out of a home office. I recall going to doctors clinics attached to their residence. Dentists, accountants, lawyers, etc. all worked that way. Store owners often lived upstairs or in the back.

        Farmers still mostly have a “home place” with a residence, shop, and at least some crop land, in addition to crop land they have to travel to.

        The whole concept of sleeping/eating in one place and forced to work somewhere else really took off with the rise of industrial mining and large factories.

  24. Anon1970 says:

    I have a picture of Toronto’s skyline which I took in the late 1950’s with my first camera, a Kodak Brownie. The tallest building at that time was the Canadian Imperial Bank of Commerce head office, which had been completed at the outset of the Great Depression. For many years, it was known as the tallest building in the British Empire. In 2005, I took a similar picture from about the same location, aboard one of the ferry boats that have been plying Toronto harbor for about a century. The CIBC building was barely noticeable among the many high rises that had been added to the skyline since the mid-1960’s.

    My guess is that there will be drought of new high rise office projects in the downtowns of big cities throughout North America for years to come.

    • lenert says:

      Ansel Adams’ “The Golden Gate Before the Bridge” has always seemed unreal.

  25. Seneca’s Cliff says:

    The other day I came across another casualty of the WFH office glut thing. Stopped by a friends house and on a huge forested lot across the street was a fancy house built in 2018 with huge sports car repair facility, fancy 12 car show room, etc. It was for sale, including the cars and mechanics stuff. I asked my friend what the deal was. He said before the pandemic the guy with the “car hobby” owned the biggest office interiors (cubicles, partitions, desks et) business in town. I can only imagine how devastated that business is now.

    • NBay says:

      Ex GF (CAD Ace, even taught it for a while) designed office interiors for big Union Pacific office in Omaha a long time ago. Said that to all the office workers there, she was “God”.

  26. Petunia says:

    Wolf,

    The SF office glut is entirely political, at this point. Austin is building and attracting capital in this space, also for entirely political reasons. I know you don’t like to go there, but sometimes you have to face the facts.

    • Harrold says:

      Middle Class folks in Texas have a higher tax burden in Texas than in California.

      Rich folks have a lower tax burden in Texas than in California.

      Its not political, its class warfare.

    • Wolf Richter says:

      Petunia,

      Austin has a major office glut too, regardless of politics.

      For Q1 2020, from Cushman and Wakefield: “An excess of sublet space continues to impede the Austin market. As of Q1 2021, there was approximately 3.7 million square feet (msf) of sublet space available for lease…. overall absorption citywide remains depressed, and once again declined with 338,000 square feet (sf) of negative absorption. Construction levels in Austin remain high. As of Q1 2021, approximately 5.4 msfof office product is under way in the Austin metro area, of which 34% is pre-leased.”

      In Q1, the total vacancy rate rose to 18.2%. Up from 10% at the end of 2019.

    • Dan Romig says:

      Petunia,

      Political reasons yes, but taxes definitely. Zero percent of one’s income is taxed in Texas. In California, 13.3% is taken after the first million bucks of income.

      But for a single person in Cali, 9.3% is taken after $57,824. One tenth of a paycheck for someone knocking down $100k in San Fran would be a bite I reckon.

      Castroville, TX was founded by Alsatian immigrants, and you can get a good croissant and coffee to start the day at Haby’s Alsatian Bakery on US 90. Austin has high rents and traffic; go west toward the Hill Country to be in Texas proper.

      • dozethatfreakintower says:

        You get what you don’t pay for.
        The idea that certain texas people are constantly jealous of California, it’s hilarious.
        tx IS one of the most corrupt states in the U.S. Knowing they can’t comply with Democratic standards set up in the U.S. some of the more vocal populace have weakly proposed seceding from the U.S. on occasion. This is usually when their corrupt politicians have yet again failed and tx. wants to try and run away from their failures.

        The highway system is a mess.
        The electrical grid is the only one in the U.S. that does not protect consumers and merchants as we saw earlier in Feb. 2021. Horrible and unacceptable. No Texas, you won’t be running away from that.
        The weather is terribly hot and one can’t live without A/C but without a reliable and equitable electric grid how can one live?

        Social programs are a disgrace.
        Clearly the educational system is a disaster.

        The place is a fire ant infested, sink hole prone, water starved, swelter hole for tax cheats and criminals.
        As it and Louisiana are the U.S. garbage dump for petroleum manufacturing, the U.S. will not allow secession.

        Any announcements by investors claiming that they are moving to the state are upheld with suspicion as no doubt special tax credits are often made to companies if they build a factory in a state. Part of these programs often entail a certain media presence. Making claims that they are going employ a bunch of people or that the companies owner is going to move there. blah, blah, blah. All part of the media package of a tax subsidy.

    • kitten lopez says:

      but Dear Petunia-
      it’s well beyond “political” now and is “existential.”
      i think it has to do with abstract worlds of fantasy in magic phone land. it’s why i’m trying to fluff my generation (X) back up before all the knowledge of how to use actual scissors is gone.

      i had a man come up and introduce himself to me yesterday while i was outside the gym dancing in the sun, and i held out my hand and said, “you wanna shake hands?”

      he held out his and said, “i’m vaccinated!”

      i said, “ha! i’m NOT! i’m a sweaty germ vector!”

      and he said, “the risk is all on YOU!”

      i was in another upside down san francisco conversation so i shook his hand heartily, tilted my head and said, “okay, i wouldn’t be me if i didn’t RISK.”

      and he laughed and i thought he left. but he saw me dance and then he avoided me after that.

      i laughed.

      it’s existential. / there are a certain type of people in san francisco now, Petunia, and i’m not sure which is the “ulcer” in the city as i plan on handing out smatterings of little printed cards that invite people to meet at a cafe at a certain date and time to have open free thinking conversations where we admit what we don’t know agree with want or do want or wish.

      back and forth human contact. i was going to try and get KPOO radio station to do annual balls to try and get people to date in REAL LIFE again because these magic phones are turning everyone into …shoppers.

      maybe i’ll post some dates on here when it happens so anyone here can join and maybe i can inspire others to do the same where they are.

      but right now i’ve got a little stalking issue i need to let dissipate and everyone i know knows i can be found here sooner or later and will give some private detail away because that’s how i do me with ever more risk. (smile)

      so i’m not planning on KPOO balls or dances, but now i’m going remedial, back to nursery school, romper room, where we need to go back and learn how to interact with each other and share again.

      so i think it’s existential, Petunia.

      and i’m fine with it.

      i was talking to a chef next door who’d started Firefly Cafe back in the day on Valencia (sold it long ago), and he’s also hoping things open up again so creativity and new ideas can flourish because they’ll NEED to now more than ever.

      my two sets of straight techie neighbors just moved this month and the last, and they never left the house to LIVE. they stayed inside with masks and now they’re gone.

      a spanish family with kids just MOVED IN next to us, and i looked at the little child in AWE because there are few children around anymore. just us old gen X’s who didn’t have family money to put down on homes earlier, stuck in tiny apartments we’d all originally assumed were temporary spots til we got sprawling compounds. ha!

      so yeah. / i think it’s full on EXISTENTIAL at this point. i left all politics behind. i just dipped in for the Free Speech part at the end, but alas, we were all too late to save The Constitution that i had no idea was already bleeding under a mattress in the gutter with no pants around its tiny twitching ankles.

      yes, Mr McNellis… god loves us follow the light and it’s gonna be okey doke because after the agony you hit a high…. and that white light. not yet. not yet.

      let Austin have these “good times.” we need a break so we can heal the ulcer that has been the last 20 years and return at least to humanity if not sanity.

      also, the new underground will likely ironically be seeded by “white guys,” the supposed ones who need to be taken down a dozen pegs. they don’t complain, organize politically, or fight BACK against this stuff because they are not trained to be victims so when they are shut out, they seem to tend to START NEW THINGS.

      (like Wolf)

      so that’s a tip to any of you out there who’re confused. look for an ostracized busy white guy and introduce yourself to him if you want a friend you can actually DO things with.

      internet has made everything fantasy. even James couldn’t get a guy online to actually SHOW up to talk about starting a punk marching band. as with dating and sexting, he wanted James to back and forth on text with him and James HATES texting. (he hates general small talk as a form of agony)

      they talk think wish dream then talk themselves out of doing things like leaving the house without masks or WITH, and nothing gets done.

      just like their business models.

      add work-from-home and put any genius left in isolation out there to work figuring out how to avoid surveillance and detection from his corporate overlords, and you’re back to imprisoning all your smartest fighters in society and forcing them to use their intelligence to figure out how to smuggle things in orifices inside, instead of figuring out a NEW WAY out of All This.

      i think it’s existential, Petunia.

      let Austin “win” the newest Ulcer. it’s gonna be a doozy because they now own Everything.

      i’m fighting back for Reality so we don’t have to exist on their abstract platforms.

      it’s back to Romper Room remediality for me. i made up that word by accident i think: a mixture of reality and remedial.

      x

      • Petunia says:

        KL,

        You can call it whatever you want, it’s about control. The cult of money want us afraid of everything all the time. I’m glad to see you don’t give a shit, I don’t either. The silent majority is alive and well and prepared.

        It’s the Golden Age of Lies for sure, now they are dredging up space aliens to consolidate their failed globalist agenda. They can and do make this shit up.

        • kitten lopez says:

          “The cult of money want us afraid of everything all the time. I’m glad to see you don’t give a shit, I don’t either. The silent majority is alive and well and prepared.”

          yes, then we agree about it being about CONTROL regardless of what we call it. / and i know you’re not just talking guns and ammo, either (laughing). i “feel” it but can’t see the evidence in the media because the weakness/ineffectiveness of controlling the entire narrative is that you cannot see beyond your drip and have covered the eyes not only behind but in the front of your head, and we’re at the next generation that thinks anything they don’t know outside their interweb life is downright supernatural and must be dismissed.

          that’s why people come HERE and often just read the comments; to get a wider spread of the realistic tenor of things out there off mainstream medialand.

          and no, i don’t care. but that’s the side benefit of what they’ve done and are doing to us all; we’re only sheep until we’ve got nothing left to lose and are on the other side of caring about… well, ANYTHING. that’s when things get good.

          and there are lots of people that’re still smarting from 10 years ago who’re still feral enough to come up with something ELSE. like YOU. that’s why i think you are just getting started, Lady Petunia. no lie. when i first read you here i knew you were too alive and were taking it all on the chin so you’d be good and mad for when you’re back in the ring.

          like me.

          i’ve copied dames like you my whole life. i knew who you were from jump.

          xxxxx…etcetera.

        • kitten lopez says:

          Petunia i got put back on probation here after being given my freedom papers for a minute. / that STUNG because i give this place my all so i’m gonna step away for a time and do my thing without hand slaps. and i was sooo good, Wolf.

          i love you anyhow,

          bye for a while y’all if not ever. time for Real Life / i’m done with Internet Permissions to Speak.

          xxxxxx to you ALL / it has been a pleasure and thank you for putting up with me here.

          sincerely yours,

          Erika “Kitten” Lopez
          see you in The Real / look out for my new “i don’t know” invitation conversation cards in san francisco

        • kitten lopez says:

          nevermind on my earlier tantrum out of here; i think i put a word in that tripped a wire because my “goodbye world” comment made it in.

          okay, i’m not breaking up with you all. just wipe my lipstick off your car. it was a first mistake so i used something that would wash off and not require me to eventually cover the insurance deductable. (i’m learning, Petunia)

          so, Wolf, nevermind. i’m not leaving you now. i’m a bougie double leo… i can get on my knees before my man in public but submitting to your comment section rules asks MORE of me somehow. i don’t know. i’m struggling.

          i’m trying to write a piece on Men. in defense of men and all that is loving deep supernatural paternal loving and epic like how many of the elder men are here.

          young men i’m sorry you all are like naked mole rats even in your upper 30s. i mean that with affection. naked mole rats are CUTE. but they don’t hold hammers, know how to use scissors either, or even turn off leaking water heaters.

          okay. i’m still here. our love is back on. / ignore earlier breakup letter. man. i hate doing that prematurely. it always takes the drama out of any later fighting exits. no one takes me seriously.

          (shrug)

          even i don’t take myself seriously anymore because i don’t understand how we even got to this place in the entire WORLD.

          x

          back to Kitten

          (“erika” is for when i’m calling you Mr and Mrs last name ice cold formality)

      • lenert says:

        Hearing now about striking North American Bitcoin Miners. Better pay, shorter hours, air conditioning.

      • jon says:

        The material wealth and comforts around us makes us very insecure lest we lose them such that we start living in fear every moment.
        Honestly, I despise this kind of life and decided to cut off myself from this circle. This circle of people are high net worth but believe me their life sucks, always living in fear and always living for other people to show off.

        All of these people are immigrants and live in fancy homes and drives expensive cars

        • Petunia says:

          That globalist telling people, they will have nothing and be happy, has no idea what he is really about to unleash. People who have nothing, fear nothing.

    • nick kelly says:

      ‘And ending 2020 with a vacancy rate of 24.1% meant that Houston continued to lead the nation in vacant office space into the new year.’
      CRE

      The basic dynamic is a flow from higher density (or pressure) to lower, similar to the physics of a compressed gas, where the container is overheated, and vents or explodes.

  27. Island Teal says:

    “Shiney Object” in reference to the Salesforce Bldg. You got me there. SF and Cali did and still has lots of said Shiney Objects. WFH has changed alot. Good article and comments. 😃😃

  28. Tokyo_Steve says:

    Oceanwide has a similar defunct project in downtown Los Angeles.

  29. Swamp Creature says:

    Downtown SF looks like downtown Denver after the oil price meltdwon in the later 1980’s. I was jogging in downtown Denver at the time and asked a dude what the hell was in those high rise buildings, as there looked like there was no activity. He said “NOTHNG’.

    He was right.

  30. Anthony says:

    Just to show you how long the “hole” can stay a hole we had a hotel started next to the gay villiage Manchester UK. There was just foundations and crane and then 2008 turned up. The hole has just been filled by a new appartment block and they will be letting anyone who bought one access, around now. Who knows how many have been sold but I’ll keep and eye on it as I have done since 2008. lol

  31. Artem says:

    This should be on display in MOMA in Manhattan. Definitely a masterpiece.

    I’d call in “Globalization”

  32. Bobber says:

    There still is a ton of construction in Seattle. Over the past few years, they built light rail from downtown Seattle to the airport and Washington University. They also tore down an elevated roadway through downtown and replaced it with a traffic tunnel underneath the downtown waterfront. They also tore down the old Hwy 529 bridge and built an entirely new bridge which extends from Seattle to the East Side.

    Currently, They are also constructing a major light-rail extension from downtown Seattle through Bellevue to Redmond. There has been a ton of construction surrounding this that will continue for a couple more years. This has led to related construction of parking garages and apartment complexes around the train stations.

    Microsoft has a $3-4B headquarters renovation in progress in Redmond with at least a dozen cranes on site and supposedly the largest (or second largest) underground parking complex in the world. I heard they are now pursuing a modest version of the initial plan, but construction continues. Google is doing a sizable office expansion in an East suburb.

    Lots of apartment projects are still going up around the area. Every time I go out for a drive it seems there’s something new going up. A lot of 30-40 year old retail space is being demolished to make room for apartments. This is consistent with the movement to online retail and exclusion of younger generations from the housing market.

    This represents a construction frenzy relative to what was happening 10-20 years ago. If the cheap money ever dies, I think construction will fall fast and hard. This is why the Fed will keep inflating until it loses control. It will not quit pumping the market on its own. This is also why Biden will push through a major infrastructure bill with or without bipartisan support.

  33. TheFalcon says:

    Let me get this straight – TPTB will take extraordinary measures to prop up the stock market and the residential real estate market, but will let the commercial RE market collapse and stay collapsed? That makes sense. I mean, it’s not like corps like Blackstone have any influence.

    • Petunia says:

      The commercial real estate market can only collapse when the banks decide to write down the bad debt, which they are not doing yet. If the banks write off the bad debt, their earnings and stock price collapse, and all other RE gets repriced downward too. It’s just better to pretend the economy is fine.

  34. KGC says:

    The reason the Fed (and everyone else) is printing money is so the banks don’t write down their bad debts. You could easily house all of California’s homeless in vacant, bank owned, housing developments in Spain. It’s not just a national problem, it’s GLOBAL.

    The powers that be cannot let the banks fail.

  35. MonkeyBusiness says:

    Speaking of some very unusual “incentive” to get people to go back to the office, “Power company PacifiCorp told employees at its Lloyd District headquarters Thursday afternoon that they must return to the office full-time on June 1 or take a 10% pay cut to continue working remotely.”

    PacifiCorp is a Portland based company.

    I wonder if more and more companies will institute such a policy in the coming months.

    • jon says:

      Living in Bay Area with full pay or living in some other better place with 90% pay. The choice is no brainer if one can swing it.

  36. c1ue says:

    I pass by the Oceanwide site pretty much every time I leave the domicile.
    After nearly a year of zero activity, there were maybe a dozen people on site in the past month. Not clear what they were doing – maybe just inspecting.

  37. rick m says:

    The property was bought out of receivership, repackaged and redesigned, and resold for considerable profit in two years inclusively in a highly regulated and politized municipality in a state which exhausted my stock of adjectives by the mid seventies. That’s very fast for a much smaller project, I smell a big fat rodent in this. Oceanwide had no idea that overseas investment was to be throttled back per CCP crackdown? The Beijing authorities have made their policies known through statements of senior military figures commenting on economic affairs to western media for some years now, and unless they feel it necessary to make an example for other companies there’s no benefit to burning Oceanwide down, presumably Chinese investors money is at risk. Unless they’re aware of similar precarious situations that may involve more money or the wrong people. And you could conceivably build some nice place there for those you don’t want in your neighborhood, but the reality is it’ll never be built there. Liquidated and sold, after the drama. Rage at the dying of the light, it still gets dark, office building was a nineteenth and twentieth century outgrowth of business scaling up, communication technology allowed scaling out. The electric motor changed the physical shape of factories. No ongoing reason for big office buildings now either.

  38. marie says:

    Those Chinese money projects are mostly a money laundering scheme for the (corrupt) high ups in the CCP.
    Like the Hudson yards in Manhattan.
    They did get a few thousand green cards in the process.
    For CCP members and their friends.
    To move to America.
    Go figure.

  39. Auldyin says:

    Looks like all the pain of higher rates without higher rates.
    This is what used to happen to development and construction in the ‘good’ old days when rates went up and down every so often. Cranes came and went, you could tell the rate by the number of cranes on the skyline.

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