Ok, so we have had some really wild times in the equity markets over the course of these last few weeks. Last week we had a little respite, although the week was red until Friday. The S&P500 sprinted higher by 2.43% on Friday to close the week up .9%. This leaves the index at 4432 which is almost 400 points off the high of 4819. My strong suspicion is that we will see a little less craziness this week, but soon will continue downward movement as markets prepare for increasing interest rates. In the end–who really knows what will happen.
The 10 year treasury closed the week at 1.78%. The range of pricing was pretty wide with a low of 1.71% to a high of 1.86% which was registered just after the FOMC meeting on Wednesday. This will be an interesting week for interest rates. Are rates going to work there way higher or will they continue to back and fill? We have employment numbers this week on Friday–I don’t believe this will heavily considered by markets.
The Fed balance sheet fell by $7 billion last week–the first drop in almost exactly 1 month.
Last week saw the largest losses in $25/share preferred shares and baby bonds that we have seen in quite some time. The average share price fell by 50 cents—with the investment grade and banking issues being the disaster of the week falling by just shy of 70 cents. mREIT preferreds fell by just under 1% with shippers 11 cents–just under 1/2%. As has been discussed on this site endlessly – low coupon,high quality issues will fall much faster than high coupon junky issues and this has been certainly borne out this week. It is noted that current interest rates are not the cause of this fall, but anticipated interest rates are responsible–plus tossing out the ‘baby with the bath water’.
Once again we had no new issues last week.
Can everyone with astute sociological insight PLEASE SHARE YOUR PEARLS OF WHATEVER ELSEWHERE! It’s enough, it’s boring, it’s a waste of space and time. Just stop it already!
Topic of everywhere California is going to implode has been going on for years. My good friends have left and keep getting pulled back into the vortex.
Adversity in life is just the start of innovation.
AMEN!
yes Original D agree..give them an inch and they take a mile here, it never stops creeping in. It is time for Tim to warn and or ban some of this …I am starting to think he wants that here because nothing is being done about it ..there are plenty of other forums like Reddit and Twitter and Seeking Alpha’s ‘political discussion’ daily feed to rain politics and hate. Probably time for me to go back to lurking again.
This weekend I watched a 30 minute video tour of downtown San Francisco that was produced by a ‘digital nomad’ who left the city he grew up in to live around the world. It was the first time he had been back to SF in three years and he was excited to see what had changed. He retraced his daily commute during week day ‘rush hour’ and showed how completely empty the train stations and streets were, as well as the sheer number of empty store fronts and offices in the heart of the city. The video ended with the guy lamenting the loss of an iconic American city that had little left to offer.
Every empty building and storefront in San Francisco has a commercial loan attached to it, which may be sitting in the portfolio of the office REIT or mREIT you own or are considering. This is not a sustainable situation (imo) and San Francisco is not the only big city in crisis. How much longer can this charade continue before it collapses in a pile of unpaid debt?
Share a link to the video?
My attempts at linking have put me in the spam filter, but the You tube channel is Johnny FD and the video is titled Ghost town: San Francisco, dated January 20th 2022.
CW:
Go to another big city in the South that is NOT rewarding shoplifting/crime, embraces capitalism and the rule of law, has a low tax structure, more affordable housing, plenty of jobs, etc. and the opposite is happening. Boom times.
The government leaders in California have truly lost their minds. I moved out of that state 10 years ago and it was the best decision I ever made.
It may be true that local/regional politics plays a role, but the fact remains that San Francisco used to have some of the most prestigious and expensive commercial real estate in the country. Now those assets and debt obligations are ticking time bombs sitting on the books of office REITs and mREITS, which in turn means they’re are sitting in the portfolios of millions of institutional and individual investors.
The question to ask is what would it take for a systemic problem in commercial real estate to develop, what kind of collateral damage would that produce across markets, and is San Francisco the canary in the coal mine that is no longer singing?
Agreed – People are leaving California by the droves because one party has made it into a living hellhole
They have rewarded shoplifting, refused to punish crime, increased taxes to pay for who knows what BS and as a result have chased business, people and jobs out of cities like San Francisco.
This is a local issue – not one that is happening in most other states around the country. Actually many other states and cities are growing. It is not a reason to panic on REITS
Citadel West; There is a very “specific & distinct” reason that this guy saw what he saw. But we are NOT allowed to discuss it on this site. If you are an astute news seeker like myself I could have told him all the “reasons as to WHY”.
I don’t know how much of the country is effected but where I live, Suffolk County NY, there are help wanted signs that have been up for over a year; for-sale houses mostly sell in 7 to 30 days; very few empty stores and there is now commercial contruction. The only homeless tent I’ve seen in the past year was removed by police. Signs of homeless is very limited and the few stay in shelters and actually less than a few years ago. Hope it stays this way. Only negatives are taxes and roads getting too crowded.
That isn’t just San Francisco. That is every major city. Mid-town Manhattan is flooded with empty office space and empty retail because of remote work and the retail landlords don’t want to bite the bullet and lower rents.
So REIT’s like SL Green and others with big office holdings could be in for a beating, as office buildings remain empty.
And the “people are leaving California in droves” is not showing up in increased inventory and real estate prices going down, except where it is happening nationwide. (namely rural communities).
Another REIT where I would be very careful on buying is Invitation Homes.
They are concentrated in some very frothy housing markets.
I agree that this phenomena is not just a California problem, although there may be some merit to the idea that some states are handling things better than others. To satisfy my curiosity I found five REITs with the largest holdings of SF Bay area real estate from a few years ago and added a hotel and industrial REIT which are also heavily invested. We’ll see how they do going forward.
Avalon Bay (AVB) -Residential REIT
Boston Properties (BXP) -Office REIT
Equity Residential (EQR) -Residential REIT
Essex Property Trust(ESS) -Residential REIT
Hudson Pacific Properties (HPP) -Office REIT
Pebblebrook Hotel Trust (PEB) -Hotel REIT
Terreno Realty Corp. (TRNO) -Industrial REIT
Out of curiosity, CW, how did you do that search and how long did it take you to do??? That seems like not an easy characteristic to search for..
I used the San Francisco Business Times which keeps lists on everything real estate related in the SF Bay area. The data on who owns the most leasable square footage comes from an issue dating back to Dec.2017. There may be more recent data available but I didn’t dig for it.
More detailed commercial information can be found on proprietary platforms like VTS who measures office demand in seven major markets around the country and CBRE has some good reports as well.
It is NOT every major city. That is the same kind of poor thinking that occurred with many of these same reits several months after the pandemic hit. The issues are isolated to a few areas and are primarily due to local / political reasons.
That aside, this is the same type of wrong thinking I heard and read from many people in May thru Sept 2020. And yet if people ignored that noise, they could have made a killing. For example, I own a few of the names you mentioned bought between May thru Sept 2020 and my:
AVB has basically doubled in value – up 95%
BXP is up about 43%
EQR is up about 77%
I also bought around the same time
CPT up 125% when I took half off the table at the beginning of January
EXR up 162% when I took most off the table at the beginning of January
Now obviously these are not the screaming buys today that they were May – Sept 2020 when people were making the same claims about vacant building, unpaid rent. And I lightened up on several of these at the beginning of January 2022. But they are reliable dividend payors and of the bunch, really only BXP would have exposure to those dreaded “vacant office buildings”. Yet most of those empty offices are still paying rent under long term leases and I believe it is a fallacy to think that companies will not continue to maintain office space. You may have a few hits in a few limited cities for local/political reasons but most of these reits are well diversified by location
For comparison, AVB as of 9/30/21 had 3580 units in San Fran out of 81,968 units in their whole portfolio. So even if some of these residential units were vacant, it would be very immaterial to their overall results
This morning I learned that demand for office space in seven major markets around the country including San Francisco is down 33% from its peak in 2021 and well below their pre-pandemic numbers. Government subsidies and rent/mortgage moratoriums are winding down, a record number of 10 year leases are coming due in 2022, and interest rates are on the rise.
Past performance is not indicative of future results and if anything illustrates the size of the bubble commercial real estate is in….ymmv
First – look at these cities. Other than Houston (which has been the worst office market for years, after its construction boom collided in 2015 with the Great American Oil Bust, which led to downsizing, layoffs, and bankruptcies of numerous oil and gas companies headquartered in Houston) the other 6 (San Francisco, Los Angeles, Chicago, Washington DC, Seattle, Manhattan) all have one big thing in common and not representative of the entire country.
I suggest you read the latest Commercial Markets Insight report from the National Association of Realtors to get a true picture of the entire country . Not sure if this link will work or get caught in the spam filter
https://cdn.nar.realtor/sites/default/files/documents/2022-01-commercial-market-insights-01-28-2022.pdf
All that said, even if you want to just rely on the 7 city stats you cited, that really only impacts one REIT you named, BXP. And as I noted, that is the one that has exposure to the office market and people should be cautious about. the other REITS are NOT office reits.
A number of BXP holdings are in your infamous 7 cities so a reason to be cautious. On the other hand, BXP has been one of 2 premier blue chip office reits, is a S&P 500 corp so it is not some little fly by night outfit, and they have had 24 years of consecutive dividend payments. They own top quality, desirable Class A space. They also have a heavy focus on life sciences and their tenants include a significant number of large long term leases with top companies. They have Salesforce, Verizon, Google, Marriott, Akami, Bank of America and others 10 to 20 year leases. So if one is to have exposure to the office REIT market, BXP is one of the better bets
As is often the case, there are a number of factors involved and anyone trying to start a narrative using one factor has an agenda or pre conceived opinion and probably has not looked at all the factors. The population of San Francisco has changed minimally over the last four years:
The current metro area population of San Francisco in 2022 is 3,318,000, a 0.15% increase from 2021.
The metro area population of San Francisco in 2021 was 3,313,000, a 0.03% decline from 2020.
The metro area population of San Francisco in 2020 was 3,314,000, a 0.12% decline from 2019.
The metro area population of San Francisco in 2019 was 3,318,000, a 0.21% decline from 2018.
While politics may play a role and cannot be discussed, there has also been the societal disruption of pandemic leading to work from home and a jump in online shopping. Can anyone determine what percentage of these empty buildings were occupied by tech firms or stores that may have been disrupted by these factors?
Excellent stats on SFO population @furcal
Similar to SFO emptying cries, often one keeps hearing there an exodus out of California to cheap/no-tax states like TX. However, a simple chart of total population of CA shows otherwise. Sure, high profile ones like Musk did leave CA for TX but for every person who left, more seem to immigrate to CA… So next time you hear a pundit claim otherwise, look up the actual stats and examine your own biases if you agreed with the wrong commentary
Here are the census figures. CA lost population
https://www.census.gov/newsroom/press-releases/2021/2021-population-estimates.html
https://nypost.com/2022/01/03/democrat-run-states-saw-residents-flee-in-2021/
https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https://bucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com/public/images/40977989-9368-4665-bc9c-112876d52c69_1058x1280.jpeg
Yes, numerically CA did loose more but it is the most populous state and 0.7% loss in population does not quite qualify as an ‘exodus’ nor statistically significant.
Here is an article with nice chart from 1981 at 25-million to current $40-ish million and the only one dip the last year to 39.x million! And a single year in 40 does not make a trend…
https://calmatters.org/politics/2021/05/california-population-shrink-exodus/
ps. I do not live in CA. I live in NJ, likely one of the states with continuing net outflows over the past decade
mSquare, I think the topic was waylaid somehow from the original mention of a video discussing San Francisco specifically but suddenly mass exodus from California was brought up which was NOT germane to the original post. I found data on San Francisco population so the state change in population, while interesting, was not relevant and only serve as distraction. Which brings me back on topic (since I am easily distracted) by asking if there is a way to 1. verify what % of available commercial space in the business district of S.F. is vacant, 2. how has that vacancy rate changed over the last three to four years, 3. what % is mortgaged and 4. what type of businesses saw the greatest change. https://www.macrotrends.net/cities/23130/san-francisco/population
The latest data from the US Census Bureau website is July 2021 showing 39237836. Their previous estimate is April 2020 showing 39538233. That is a loss of 300,000. Others can do their own estimates and publish different numbers.
03:12 AM EST, 01/31/2022 (MT Newswires) — CareCloud(MTBC) said Friday that it priced a public offering of 1 million shares of non-convertible 8.75% cumulative redeemable perpetual preferred stock at $25 a piece, for expected net proceeds of $23.1 million. The offering is expected to close on Feb. 2.
The preferred shares will trade on the Nasdaq Global Market with the ticker symbol “MTBCO.” Underwriters have a 30-day option to buy up to an additional 150,000 preferred shares.
CareCloud (MTBC) plans to use the net proceeds from the offering to redeem a portion of its 11% series A cumulative redeemable perpetual preferred stock. The company also reserved up to $7.5 million of net proceeds for working capital, general corporate purposes and growth initiatives, including potential future acquisitions.
One new issue last week:
https://www.otcmarkets.com/stock/BACXL/overview
What is the coupon on BACXL?
I read here somewhere it was 4.75%. Did it change I am not sure. I was surprised by it being that high.