THE Financial world is increasingly warning of the pain to come for owners of office buildings.
Investment leaders, from Apollo Global Management’s Marc Rowan to Cain International’s Jonathan Goldstein and Citigroup chief executive officer Jane Fraser gathered this week in Beverly Hills, California, for the Milken Institute Global Conference, right as turmoil with First Republic Bank peaked with its last-minute sale to JPMorgan Chase. Now, eyes are turning to another source of potential risk: commercial property.
“It’s a bad day to be an office owner in San Francisco and Chicago,” said Rowan, co-founder and chief executive officer of Apollo. “We are going to see losses,” he added, noting that the stresses will be concentrated and not systemic.
Offices have become a particular source of stress given the rise in remote and hybrid work, which has limited the prospects of filling those towers back up. The US vacancy rate for office buildings was nearly 19 per cent at the end of the first quarter, increasing for the past 13 straight quarters, according to broker Cushman & Wakefield.
“I do think we’ve got a period of pain and I don’t think we’ve yet reached the bottom of that,” said Cain’s Goldstein. “But there will be opportunity that comes out when people do begin to sense that the bottom’s been reached.”
Rising borrowing costs are also squeezing property owners, complicating the financing for many buildings. It has led landlords including Brookfield and Columbia Property Trust, owned by funds managed by Pacific Investment Management, to default on debt. Some of the landlords have defaulted as a strategic step to kickstart negotiations with lenders…….
