San Francisco commercial property owners, with almost $9 billion in outstanding loans from Wall Street, are seeking tax relief from the city. This request comes as San Francisco prepares for an expected budget shortfall that may exceed $1.2 billion in five years.
Barclays reports that many well-known office buildings, hotels, and retail properties, including Vornado Realty Trust’s 555 California office skyscraper and the Westfield San Francisco mixed-use shopping center, are among the properties making these requests.
Westfield has already surrendered the keys to its shopping mall to lenders after acknowledging “challenging operating conditions” in San Francisco’s core area, yet it still owes $558 million of debt on the property.
Vornado Property Trust and Westfield did not respond to requests for comment.
According to Glen Weiss, Vornado’s co-head of real estate, 555 California has bucked the trend in downtown office space. During a first-quarter earnings call on May 2, he stated that the former headquarters of Bank of America has lost no tenants. Goldman Sachs, KKR, Microsoft, and BofA all renewed leases over the last three years, without reducing their office space.
San Francisco’s Remote Work Impact
A recent note from Barclays credit and municipal strategy team suggests that San Francisco has been one of the worst affected cities when it comes to remote working and the postpandemic recovery.
The city’s commercial property landlords requested a 40% average drop in their property assessment, while also filing for $59 billion in total tax relief in 2022. Among the securitized bond deals, loans with 50% drop requests correlated with the assessments of the underlying assets.
As a result of the COVID crisis and the Federal Reserve’s pace of rate hikes, San Francisco’s budget deficit is ballooning due to lower property tax revenue. While the city is known for its soaring home prices, its commercial buildings contribute more to the annual property taxes totaling $2.5 billion.
Related: Former WeWork office building in San Francisco sees value slashed by about 66%
