Let me start by saying the financial district of San Francisco holds a very special place in my heart. It’s where I spent two years working 12+ hour days building my 2nd startup.
I’ll never forget it. For years, it was unlike anywhere else. Busy office buildings, crowded sidewalks, insane crosswalks, Ubers that took 20 minutes to go two blocks on New Montgomery street (let’s be realistic…one block), and God the coffee. I swear I’ve never had better espresso than from the little shops that dotted the Financial district.
Every night as I coded away for months on end, around 6pm, this homeless man would start playing the trumpet about a block from our office. It was a calming reminder of the beauty and unique quality of San Francisco. And every night, he’d play the most hauntingly beautiful rendition of Somewhere Over the Rainbow. The office would always be empty by then, just me and the glow of my monitors. I’d stop what I was doing, lean back, close my eyes and listen, sometimes being brought to tears as the sheer beauty of this music reverberating around the skyscrapers. It was a very human reminder of how simple life was against the complex technology I was building.
I’m horrified by what has happened to the Financial district and deeply saddened that it is not the wonderful place full of energy that brought me so much hope during those years.
And alas, as someone who lives a life defined by always taking the red pill, there are some very real issues at hand that must be discussed.
Around the country, as I mentioned the other day, we’re hearing numerous companies call for employees to return to the office. However, it’s not happening at a very quick pace. Commercial property vacancies remain astonishingly high across the country and are about to become a serious problem.
From 2010 on, demand for commercial office space caused a huge investment in construction as anyone who lives in a major metropolitan area can tell you. However, COVID ended that as workers not only fled office buildings, but the very areas themselves to lower cost of living parts of the country.
Let’s look at the vacancy rate of some major metropolitan areas:
Houston - 18.8%
Dallas - 17.2%
San Francisco - 16.4%
Chicago - 15.1%
New York - 12.3%
San Jose - 12%
Now, just because a space is leased doesn’t mean it’s being used as anyone who lives in these cities can attest. Downtown San Francisco is basically a ghost town. Cell phone analysis of major metropolitan areas says all we need to know.
Some cities are recovering faster than others but San Francisco’s recovery ranks dead last.
Now, the problem with empty commercial real estate is massive. The loans used to finance these buildings are typically much shorter than a home mortgage, say 5 years, and many will have to be refinanced in the next few years. In this high interest rate environment, who is going to refinance an empty office building at several times the cost? Nobody. The companies would rather default on their obligations and let a court sort it out. It’ll literally be cheaper. The upcoming commercial property crisis may make 2008 look like child’s play.
But let’s look at San Francisco. Commercial property tax revenue makes up for about 36% of the city’s budget expenditures. San Francisco’s own assessment admits that after reassessment of empty office buildings, this $2.6 billion might drop by 43% in coming years. That would leave a gigantic hole of $1.12 billion in San Francisco’s budget or more than its entire public works, transportation, and community health budgets. The shortfall would be about 17.5% of San Francisco’s entire general budget.
This is a catastrophic event. This is a city so used to good times that an article I once read quoted a city official that said anything less than a 2% increase in the city tax income every year is a disaster.
I don’t portend to have any solutions. Times are changing. Tech work is extremely easy to do from the comfort of your own home. You can hear London Breed yourself desperately begging workers to return to downtown because she sees this coming.
Now so do you. And it’s going to dramatically change everything about the city.
Thanks for the post George! Covid killed nothing, the authors of this attack upon humanity killed the golden goose.