As Twitter rethinks its San Francisco footprint, a huge $9 billion question hangs over the city’s office market

Twitter Inc. put it on review Wednesday to downsize its larger San Francisco office footprint, and decided to open an office in Oakland, Calif., a person with direct knowledge of the matter said.

The move has clouded the future of the social-media site Stylish San Francisco HeadquartersThe 1.1 million square foot Trophy office complex at 1355 Market Street, where Twitter TWTR,
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According to trap data, it occupies about 75% of the space.

Cuts by the technology giants could result in painful repercussions for San Francisco, a city with a skyline and culture that has changed dramatically in recent decades by the tech boom on its home turf, but also staggering disparity And a homelessness crisis The pandemic has gotten worse.

Twitter said in a statement on Wednesday that it is “evaluating our global office portfolio and resizing certain locations based on usage,” but also that its decision “would affect our existing key counts or employee roles.” does not do.”

Office in Seoul; Wellington, New Zealand; Osaka; Madrid; Hamburg; Sydney; and Utrecht, the Netherlands, were placed under review for closure when the lease expires, a person with knowledge of the matter said. The plan would be to resize offices in Tokyo, Mumbai, New Delhi, Dublin, New York and San Francisco, but plans to scrap the downtown Oakland outpost entirely.

twitter is done Battling Elon Musk in Court Tesla Inc. After TSLA,
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After raising the issue of bots and spam on the platform, the chief executive informed the company that it was terminating its $44 billion agreement to acquire it.

$9 billion cloud

Beyond Twitter’s headquarters, lenders have financed nearly $9 billion in office properties in San Francisco in recent years by selling commercial mortgage bonds to investors, according to a trap tally.

Once viewed as a relatively safe real estate bet, especially trophy buildings, office properties have recently been a serious source of concern for landlords and financiers due to the rise of hybrid work.

“There are so many technology companies that drive San Francisco that aren’t coming back, or coming back the same way,” said Dan McNamara, founder of hedge fund Polpo Capital, a property debt investor focused on the crisis. .

“San Francisco is almost a complete stop for us,” he said over the phone.

While more workers are trickling into offices relative to the pandemic, San Francisco still lags behind other major US cities with 38.1% occupancy as of July 25, according to the Kastel system’s 10-city back-to-work barometer, 44.7% is the national average. ,

“It’s unimaginable two to three years ago,” McNamara said of the low occupancy levels. Before founding Polpo, he made headlines for making lucrative bets against failed shopping malls at MP Securitized Credit Partners.

Need to reconsider?

The pandemic and its far-reaching repercussions were not on the radar 10 years ago, when the oldest loans in outstanding commercial mortgage bond deals would have been underwritten.

Carnage comp in high-flying tech stocks,
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spx,
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Things have gotten worse in the first half of 2022, with M&A activity and the IPO market drying up, but also bringing cost-cutting and cutting costs for many of the technology companies that call the San Francisco Bay Area home.

Twitter shares rose 1.3% on Wednesday, but were down 41.7% from a year ago, according to FactSet.

See, This is the end of ‘Fantasyland’ for Big Tech and its employees

Daniel Herzstein, director of public policy at the San Francisco Chamber of Commerce, said more tourists, travelers and officer workers have been returning in the past few months. But he also said that San Francisco needs to prepare for a new way to move forward.

“The pandemic has fundamentally changed how we use offices, and we need to look at our economy, especially in the city of San Francisco,” he said over the phone.

Office A No-Go Zone For Lenders?

San Francisco has its own set of challenges, but finding lenders willing to make a big bet on paying back 10 years down the road has made it harder almost everywhere.

The lack of a clear picture of the future of the office has made “financing an office building very difficult to impossible”, said Robert Verone, founder of Ironhound Management Company, a property exercise firm in New York. “Most lenders don’t want to do anything.”

Prior to the workout, Verone worked on Wall Street and initiated large loans on commercial properties for nearly two decades. He has yet to be asked to help settle office-property debt in San Francisco during the pandemic, but he is working in the retail sector in the city.

San Francisco, which is already grappling with remote and relocated office workers, took a $400 million hit in tax revenue last year, according to the city’s comptroller’s office.

While many investors expect more pain for the office sector if tech companies go down, the pain could be worse for older office buildings to fall out of favor before COVID.

According to Deutsche Bank, tenants are fleeing older buildings for new buildings built since 2015 (see chart), the only category to show negative net absorption, or reducing vacant space, is the trend.

Tenants fleeing old buildings.

Deutsche Bank, Jones Lang LaSalle

debt maturity looms

Borrower Shorenstein Properties, a real-estate developer, owes $400 million on a senior mortgage at Twitter’s San Francisco headquarters, according to Trap, a platform specialized in monitoring commercial mortgage bond deals.

A June update indicated that the borrower remained current, but is seeking refinancing before the mortgage matures in September. Shorenstein did not immediately respond to a request for comment.

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