People are leaving S.F., but not for Austin or Miami. USPS data shows where they went

San Francisco residents abandoned the city in droves during the first eight months of the pandemic, but they generally did not venture very far, according to new data from the United States Postal Service.

The postal service analysis of change-of-address requests during an eight-month period between March and November shows that while the influx of new residents coming into the city remained constant between 2019 and 2020, the number of households leaving skyrocketed by more than 77%, or roughly 35,000 households — from 45,263 in 2019 to 80,371 in 2020.

But the postal service report doesn’t support the conventional narrative that the bulk of those leaving the city are decamping for cheaper, more business-friendly states like Texas and Florida. Instead, the majority of those escaping the city during the pandemic relocated to other Bay Area counties. The top six destinations were all Bay Area counties: Alameda, San Mateo, Marin, Contra Costa, Santa Clara and Sonoma.

Rounding out the top 10 were Los Angeles, San Diego, Napa and Riverside.

In total, the postal service received 138,717 change-of-address requests from San Francisco households between March and November, of which 57,915 — about 41% — were moves within the city.

Victor Hernandez with Shamrock Moving and Storage moves a client's belongings into a house in San Francisco on Wednesday, June 17, 2020. New data from the United States Postal Service shows a large number of S.F. residents moved to other locations in the city during 2020.
Victor Hernandez with Shamrock Moving and Storage moves a client’s belongings into a house in San Francisco on Wednesday, June 17, 2020. New data from the United States Postal Service shows a large number of S.F. residents moved to other locations in the city during 2020.

Nick Otto / Special to The Chronicle

San Francisco’s chief economist, Ted Egan, said that while the out-migration patterns are alarming — only Manhattan has had as large an increase in people leaving the city during the pandemic — the fact that many are not going very far could represent “a silver lining” as the economy recovers post-pandemic.

“You are not going to have to worry about getting them to move back from Boise,” he said. “It looks more like normal pre-COVID migration flows. People are settling into nearby Bay Area suburbs. They are going to Sacramento and L.A. Travis County, which is Austin, Texas, is way down the list. Portland is way down the list. New York is way down the list.”

Many San Francisco residents are also taking advantage of lower rents to relocate within the city, Egan said. Nearly 20,000 more San Franciscan households moved within the city during the March-November period of 2020 (58,346) than did so in the same period in 2019 (38,484).

The pattern suggests that San Francisco rent prices could continue to fall as rental and home prices rise in the suburbs. Even if the city’s apartment occupancy goes up, San Francisco could be less dense, as more people can afford to live alone or with one roommate rather than doubling or tripling up.

“It is as if everybody is saying, ‘Forget that overpriced place, I’m going to move across the street and save a grand a month,’” Egan said.

For Piper LaGrelius, a mother of four and an arts specialist in the Palo Alto school district, it was the San Francisco Unified School District’s lack of focus on reopening schools that drove a recent decision to relocate from Noe Valley to Lafayette in the East Bay. San Francisco public schools have been closed since last March and a final reopening plan has not been announced. The family has a fifth-grader, a second-grader and twins in preschool.

“There are a lot of reasons to go but the driver is we wanted to be in a community that is centered around families and schools,” she said. “(In Lafayette) the conversations at the school board are all about how do we get creative and open the schools as fast as possible. That has not been the priority at the San Francisco school board.”

LaGrelius is sad because she loved living in the city, but it seemed like the right move. “COVID has forced a lot of people to reevaluate. It’s not just about the pandemic. It’s given us time and space to evaluate our priorities and figure out what we need to be successful as a family.”

But while many city residents left for the outer Bay Area counties, the region also lost population during the pandemic, according to the postal service data. In March to November of 2019, nearly 61,000 more change of address requests were made out of the nine counties than into them. In the same period in 2020, 111,350 more requests were made out of the nine counties than into them.

Enrico Moretti, an economist at UC Berkeley, said the out-migration is being driven by a combination of the high cost of living and perceived quality-of-life challenges.

“There are cities that compete on price and cities that compete on quality,” he said. “When you look at the Bay Area, it doesn’t compete on price, and when you look at the quality of our public schools and how we manage public spaces — homelessness and crime — it’s not on par with what people pay to live here.”

After a few months of subletting, Cindy Huynh and a roommate left their Polk Street apartment and put their stuff in storage. Huynh, a public relations specialist working remotely, has been living with her mom in Battle Creek, Mich., since the middle of last year. She and her roommate had been paying $3,400 a month.

“That was way more than I was willing to pay for a room I wasn’t coming back to at night,” Huynh said.

She has enjoyed saving money and her mom’s homemade pho, but still plans to return to the city. She misses the restaurants, her friends, and the California sunshine. And she envisions one day returning, even though her employer has indicated remote work will continue into 2022.

“I’m still pretty bullish about moving back to San Francisco,” she said.

Chronicle staff writer Susie Neilson contributed to this report.

J.K. Dineen is a San Francisco Chronicle staff writer. Email:

Posted on February 18, 2021 at 5:42 am
Ravi Jagtiani | Posted in My Blog |

Could California’s Shopping Centers Be a Housing Fix? A trio of bills propose plugging the state’s huge housing gap with commercial-to-residential conversions of strip malls. New research suggests it could work.

A vacant shopping center in El Centro, California. 
A vacant shopping center in El Centro, California.

Photographer: Photo by: Mickey Strider/Loop Images/Universal Images Group via Getty Images

El Camino Real is a 600-mile historic thoroughfare that once linked Spanish missions in California, running from San Francisco to San Diego. Between Daly City and San Jose, the road is a nearly 45-mile corridor of suburban offices, fast-food outlets, auto parts stores, and other businesses slicing through Silicon Valley, tying together some of the nation’s priciest residential neighborhoods. Like so many other shopping-center laden strips of pavement that ribbon California, this segment is, for the most part, devoid of homes.

Joe DiStefano sees boulevards like El Camino Real as more than just spots for takeout or an oil change. He sees a “perfect storm of opportunity.” Cofounder and CEO of UrbanFootprint, a software company that builds urban planning tools, DiStefano has done numerous studies on the housing potential hiding in California’s commercial strips. According to UrbanFootprint’s analysis of El Camino Real, this lone corridor could theoretically accommodate more than 300,000 new units if the road was upzoned to allow residential development and its parking lots and big-box stores became low-rise apartment complexes.

In a state that needs 1.3 million more affordable rental units, according to the California Housing Partnership, such conversions could “take major bites out of the state’s housing crisis,” DiStefano says. “This meets so many California challenges. How do you attack the Covid crisis and deep economic trenches it’s creating in some communities, while at the same time attacking climate change and adding affordable housing?”

Converting underutilized retail and office space into apartments is not a novel idea, but it’s gaining fresh attention from California lawmakers, especially as pandemic-fueled e-commerce and remote work trends continue to empty brick-and-mortar stores and business parks across the state. In December, California State Senator Anna Caballero, who represents the Central and Salinas valleys and cities such as Merced, helped introduce Senate Bill 6, which would fast-track the creation of walkable infill development and make it easier to turn land zoned for commercial uses into housing. Another member of the state’s legislature, Assemblymember Richard Bloom, has a similar proposal to encourage commercial-to-residential conversions, Assembly Bill 115. (California has a bicameral legislature.) And Senator Anthony Portantino introduced AB15, which would incentivize turning vacant big box sites into workforce housing.

“We have an opportunity to create a much more walkable community, build more housing, and stop sprawl,” Caballero says. “We have a housing shortage today of 2.5 to 3 million units statewide. If they were all built tomorrow, they’d have tenants.”

But more than 40% of commercial zones in California’s 50 largest metros prohibit residential development, according to a recent report from the Terner Center for Housing Innovation at Berkeley. “Residential Redevelopment of Commercially Zoned Land in California” highlights the growing potential of such rezoning proposals. “It’s a perfect infill option,” says David Garcia, a co-author and policy director at the Terner Center. While legislation like these proposed bills hasn’t been passed in other states, he believes they address a universal problem. “You’re really plugging in gaps left by shifts in the commercial marketplace, by Covid and the shift to e-commerce.”

There are three main types of projects ripe for this kind of reuse, Garcia says: commercial strips in more urban areas, often along existing transit lines; former big box retailers in more suburban areas; and vacant land in the exurban landscape that’s been reserved for future development. Researchers found there was actually more acreage of available commercial space per person in more suburban/outlier areas, an opportunity that, if paired with increased investment in transit, could quickly bring more density and valuable walkable development to fast-growing and diversifying suburban centers, some of which have already done a relatively good job of building new housing. “Instead of thinking about a bill like this as another state mandate cities need to adhere to, it should be looked at as a tool for doing the good planning they need to do anyways,” Garcia says.

On smaller scales, some California municipalities have instituted their own commercial-to-residential conversions, along with numerous one-off projects by developers. In Los Angeles, an adaptive reuse ordinance meant to convert old downtown buildings such as lofts and factories into apartments has added more than 14,000 units to the city since 1999. In Oakland, the Broadway Valdez District Specific Plan converted a commercial strip once known as the city’s Auto Row into a “complete street, transit-first,” mixed-use neighborhood, including new housing.

The ability of this kind of statewide legislation to solve multiple problems at once, according to supporters, suggest it should be a slam-dunk for approval in a state starved for housing production and struggling with an ongoing epidemic of homelessness. (The Terner report doesn’t make predictions about the total number of housing units such changes might produce, leaving those estimates to a future report). UrbanFootprint’s DiStefano also believes that targeted investment in already dense areas would fit with the incoming Biden administration’s climate and housing priorities.

As a candidate in 2017, Governor Gavin Newsom pledged to build 3.5 million new homes in California by 2025. But that effort is falling far behind schedule, as political realities and NIMBYism have repeatedly doomed recent efforts to boost California’s housing production. The large number of stakeholders — labor, environmental groups, local government and residents — have made it very hard to pass pro-housing bills. State Senator Scott Wiener, a Sisyphus of housing legislation, has pushed numerous bills in recent years, such as a transit-oriented development plan mostly recently proposed as SB50, only to see them die in legislative chambers. The “May Massacre” of state housing legislation in the spring of 2019 made the state “a poster child for untenable inequality,” wrote L.A.-based journalist Alissa Walker in Curbed.

Caballero and Bloom hope for a different outcome this legislative session, but both pointed to numerous potential sources of pushback. Despite the sprawl-fighting benefits of siting housing in already urbanized and transit-accessible areas, Caballero’s bill ran into some resistance from environmental groups when it was first proposed last year, because it would expedite the environmental review process via California’s infamous CEQA process. And Bloom expects his bill will bring out NIMBYs who raise objections about traffic and “neighborhood character”; his bill includes maximum height limitations to help address some of these complaints and compatibility issues.

“We don’t want to destroy neighborhood character, but we don’t do that by building new housing; that’s a red herring for the most part,” says Bloom. “We also have to balance priorities, one of which, I think, would be helping the millions of Californians who can’t access affordable housing.”

There’s also the issue of sales tax revenue for cities that comes from commercial property; Caballero’s bill mandates that property be vacant for three years, which focuses more on giving the city tools to repurpose underutilized land, from a revenue perspective.

Since the new legislative session in Sacramento just started in December, both Bloom and Caballero need to introduce their bills in committee. There are also some slight differences that would eventually need ironing out; Bloom’s bill has an affordable housing requirement, while Caballero’s bill has a provision for skilled and trained labor paid at the prevailing wage.

Bloom believes 2021 will bring more action on housing: State Senate leadership has already unveiled a suite of bills this session, and while the business of the state has been delayed by increased security concerns following the attack on the U.S. Capitol on January 6, he expects the topic will be a major priority going forward. Zoning isn’t the silver bullet to solve the issue, says Garcia, but it can help unlock plenty of potential.

“I certainly hope we see more action this session, because the housing crisis is causing people to leave California, and that’s very disturbing,” says Bloom. “It’s something that we all need to take seriously.”

Posted on January 28, 2021 at 6:21 pm
Ravi Jagtiani | Posted in My Blog |

Oracle Relocates California Headquarters to Texas

Oracle Relocates California Headquarters to Texas

Tech Firm Picks Austin for New Home Base As It Implements Flexible Work Policy

Oracle has changed its headquarters from Redwood City, California, to Austin, Texas, reflecting a more flexible employee work location policy. (CoStar)Oracle has changed its headquarters from Redwood City, California, to Austin, Texas, reflecting a more flexible employee work location policy. (CoStar)

Global software firm Oracle has moved its corporate headquarters from Silicon Valley to the Texas capital city of Austin, becoming just the latest Fortune 500 company to flee the more expensive West Coast for what executives say is the more business-friendly Lone Star State.

Oracle disclosed the move in a filing Friday with the Securities and Exchange Commission, citing a decision to implement a more flexible employee work location policy. The strategy is expected to offer employees a better quality of life and output, executives said.

The company ranked No. 82 on the Fortune 500 list this year of the largest publicly traded U.S. companies by revenue with nearly $40 billion and 132,000 employees. Texas is now home to the headquarters of 54 Fortune 500 companies, which puts it on par with New York, leaving California with just 49 companies.

Other companies that relocated to Texas, which has no state income tax, from California this quarter include technology firm Hewlett Packard Enterprise, which relocated to the Houston area, and real estate brokerage CBRE Group, which chose Dallas. Financial services firm Charles Schwab is expected to make its move to the Dallas area official Jan. 1.

Oracle opened its custom-built campus in Austin by Lady Bird Lake in 2018 and has had a presence in the city for years.

In the SEC filing, Oracle executives said the change of its corporate headquarters from Redwood City, California, to Austin was tied to it “implementing a more flexible employee work location policy,” which will position the company for future growth.

“Depending on their role, this means that many of our employees can choose their office location as well as continue to work from home part time or all of the time,” according to the filing. “In addition, we will continue to support major hubs for Oracle around the world, including those in the United States such as Redwood City, Austin, Santa Monica, Seattle, Denver, Orlando and Burlington, among others, and we expect to add other locations over time.”

An Oracle spokeswoman declined to comment beyond the filing.

Kelley Rendziperis, a principal at Site Selection Group who is based in Austin, said in an interview with CoStar News that “it remains to be seen what this could mean to Austin, with Oracle being a great example of how COVID-19 has affected the work-from-home environment.”

Oracle, which received $1 million in 2013 from the Texas Enterprise Fund, the state’s deal-closing fund, may not be focused on landing new economic incentives. It may also be difficult to move workers in the immediate future with the pandemic, she said.

Gov. Greg Abbott said Oracle is already a strong presence in Texas.

“While some states are driving away businesses with high taxes and heavy-handed regulations, we continue to see a tidal wave of companies like Oracle moving to Texas thanks to our friendly business climate, low taxes, and the best workforce in the nation,” Abbott said in a statement.

The pandemic environment has left tech companies more mobile than they have ever been, with those firms often reliant on productive work-from-home employees.

“Tech companies have all started in the California area, but as they have seen talent grow across the United States, their need to be in California has lessened,” Rendziperis said. “Those decisions are also driven by the tax structure in Texas with no individual state income tax and more favorable tax margins in most cases. Texas is also known for being more business friendly.”

CoStar reporter Marissa Luck contributed to this report.

Posted on December 12, 2020 at 12:07 am
Ravi Jagtiani | Posted in My Blog |

Stunning rebound: Bay Area home sales surged nearly 70% from May to June; prices rose 3.6%



The Bay Area home market saw an enormous resurgence in sales and a modest increase in prices from May to June, as pent-up demand and record-low interest rates collided with sparse inventory, according to a California Association of Realtors report issued Thursday.

Sales of existing, single-family homes rebounded 69.2%, the largest month-to-month sales jump since the association started keeping records for the Bay Area in 1990. Compared to June of last year, sales were down 7.8%. The median price rose to an even $1 million, up 3.6% from May and 4.2% higher year over year.

Because deals typically take around a month to close, June sales and prices largely reflect deals that started in May, as shelter-in-place orders eased and the economic outlook became “less-opaque,” said Jordan Levine, the association’s deputy chief economist. “I think the last couple weeks we have seen uncertainty increase,” he added.

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On Monday, Gov. Gavin Newsom took steps to close down parts of the state’s economy that had reopened. On Thursday, the government reported that 287,732 Californians filed unemployment claims last week, up 8.7% from the week before and the highest since early May.

June’s sales surge represents a sharp turnaround from the May, April and March, when Bay Area home sales fell 51%, 37% and 12%, respectively, on a year-over-year basis as shelter-in-place orders and widespread economic uncertainty kept buyers and sellers on the sidelines.

“Pending sales hit bottom in late April,” Levine said. By late April and throughout May, demand was coming back as “the economy opened up slightly.” Also by May, people who were tired of living — and working — in cramped quarters were looking to expand.

What they found on the market was — not much. In June, there were just 5,304 active listings in the Bay Area, down 31% from 7,655 in June of last year. The only Bay Area county with an increase in active listings was San Francisco.

Falling mortgage rates also helped with affordability. On Thursday, the average rate on a 30-year fixed-rate mortgage fell to 2.98%, the first time it had ever dipped below 3% in the nearly 50 years since Freddie Mac has been tracking the rate on government-backed mortgages.

The association’s report does not include sales of condominiums, newly built homes and ones not advertised on a Multiple Listing Service.

The market for condos was generally weaker than for single-family homes last month. The median condo price fell to $701,000, down 0.6% from May and down 6.5% year over year. Condo sales were up 82% from May but down 22% from last June. The association reports condo numbers separately from its main report.

Jing Fang, a broker associate with the Compass real estate firm who works mostly with condo buyers in San Francisco, said he is seeing “a lot of momentum and activity. Buyers think there is a little bit of an adjustment in the market, and interest rates are below 3% now.” For one-bedroom units, “I’m not seeing much of a price reduction.” Two-bedroom units selling for close to $2 million “are a little soft.” She added that “sellers are pretty motivated. Otherwise they wouldn’t put their home on the market right now.”

Jessica Tsai and Marvin Lam are purchasing a one-bedroom unit with patio and den in a new condominium building that’s nearing completion on Third Street, in San Francisco’s up-and-coming Dogpatch. The couple put a deposit down in November because “we are engaged and wanted to spend a little bit more time in the city. We weren’t ready for the burbs yet,” Lam said.

They like Dogpatch for its proximity to the waterfront and new Warriors arena. Lam was planning to open a new business in the neighborhood. After the coronavirus hit, they monitored condo prices south of Market Street and found “more volatility” than before. “Some close above asking, some under, some still on the market longer,” Lam said.

“A lot of price reductions were in other areas. The new buildings in Dogpatch seem to have retained their value,” Tsai said. They’re going ahead with the purchase because “we still really like the property.”

Statewide, single-family home sales rose 42.4% between May and June and the median price rose 6.5% to $626,170, a record high. “A change in the mix of sales was one primary factor that pushed the median price higher in June, as sales of higher-priced properties bounced back stronger than lower-priced homes,” the association reported.

That was true in the Bay Area as well. In April, lower-priced homes were selling faster than higher-priced ones.

In June, “high-price home market segments around the Bay Area were extremely strong,” Patrick Carlisle, chief market analyst for Compass said in a report last week. “In San Francisco, houses selling for $2.5 million and above constituted 30% of all house sales, well above the 2-year monthly average of 18%.”

San Francisco overall, which has had some of the strictest shelter-in-place rules, has been the “weakest performing market as measured by supply and demand indicators (but not median price change) in the Bay Area in the last 4 months. However, it too has seen a very strong rebound from the huge declines immediately following (shelter-in-place) rules being implemented in mid-March,” Carlisle wrote.

He added that the San Francisco rental market “has been hammered by declining rent rates and increasing vacancy rates as newly unemployed residents leave the most expensive apartments in the country. Unemployment typically hits the rental market much harder than the for-sale market.”

If unemployment continues to rise, the “ripple effect” will be felt throughout the housing market, Levine said.

Kathleen Pender is a San Francisco Chronicle columnist. Email: Twitter: @kathpender


Posted on July 17, 2020 at 3:30 am
Ravi Jagtiani | Posted in My Blog |

Unemployment Drops to 11.1% – See how individual commercial asset classes are performing!

Jobs Gained
in June
Jobs Lost
Over Past Three Months
11.1% ▼
Unemployment Rate

Executive Summary

  • The U.S. economy added 4.8 million jobs in June, almost double economists’ consensus expectations.
  • Unemployment dropped to 11.1% from 13.3% and the labor force participation jumped significantly to 61.5%. The participation rate is now just under two percentage points below its level in February.
  • This month’s report must be viewed cautiously, as most data was collected prior to the late June spike in COVID-19 cases in Texas, Florida and elsewhere. Jobs gains and losses likely will be highly volatile in coming months.
  • The potential for a “V”-shaped economic recovery has been called into question due to the virus’ flare-up. The strong recovery of jobs for the second consecutive month bolsters expectations that the U.S. economy can avoid a worst-case scenario.
Commercial Real Estate Highlights
Jobs Added in June

Jobs Lost Over Past Three Months

Professional and business services added 306,000 jobs, but is still 1.8 million below February peak levels. Office-using jobs have been more insulated during the COVID-19 crisis than many other sectors. However, the impact from secular shifts due to increased work-from-home regimes is a major open question for the commercial real estate industry.

Jobs Added in June

Jobs Lost Over Past Three Months

Manufacturing continues to bounce back, but total employment remains almost 750,000 below February levels. Continued ramp-up to full manufacturing capacity should provide an additional boost to the U.S. economy into the third quarter. Transportation and warehousing were bright spots in June, adding 99,000 jobs following declines in April and May.

Jobs Added in June

Jobs Lost Over Past Three Months

Enormous increases in retail, hospitality and leisure industries drove more than half of June’s total job gains. This is a reflection of both a seasonal upswing during the summer as well as the unleashing of pent-up demand from consumers as local economies reopen.

Jobs Added in June

Jobs Lost Over Past Three Months

Construction jobs showed a modest increase, but still were well below June 2019 peak totals. The pullback of lenders from construction financing—particularly for speculative projects—should keep a lid on construction job growth into 2021.

Health Care
Jobs Added in June

Jobs Lost Over Past Three Months

Gains in non-essential healthcare services that have reopened—including dentists (190,000) and physicians (80,000)—more than offset losses in nursing home facilities (-18,000). As healthcare services continue to reopen in more local economies, the medical office segment should receive a boost.


Employment gains, combined with generous unemployment insurance, provided stability for the multifamily sector. Pressure remains on the senior and student housing subsectors. The disease’s continued significant toll on the older population and uncertainty about college and university reopenings remain significant clouds on these sectors.


An enormous increase in drive-to U.S. hotel destinations provided a modest boost to the hospitality sector. However, hospitality should remain beleaguered at least into 2021, when business and international demand resumes.

The Bottom Line

June’s jobs report—following May’s performance—significantly exceeded expectations. While heavily concentrated in the hard-hit leisure, hospitality and retail segments, the jobs gains were broad based. On the surface, the June performance adds credibility for a “V”-shaped recovery. The optimistic view is dimmed, however, by the COVID-19 case spikes and resultant partial snapback of economic shutdowns in Florida, Texas and elsewhere. Therefore, we caution against reading too much into the May and June employment gains. Jobs gains and losses can be expected to remain highly volatile over the next several months.

Fiscal stimulus, such as the Paycheck Protection Program (which was extended yesterday through August) and generous unemployment insurance, have been tremendously helpful to the economy. Commercial real estate has benefited from higher-than-expected rent collections in office, industrial and multifamily. The trajectory of the economic recovery will be heavily dependent on the extension of government fiscal stimulus programs—which face an uncertain future—and the retail and hotel sectors, in particular, may ultimately require additional support.

Posted on July 2, 2020 at 7:56 pm
Ravi Jagtiani | Posted in My Blog |

Pending home sales spike a record 44.3% in May, as homebuyers rush back into the market


  • Pending home sales spiked a stunning 44.3% in May compared with April, according to the National Association of Realtors. That beat expectations of a 15% rise. Sales were still 5.1% lower compared with May 2019.
  • The average rate on the 30-year fixed mortgage started May around 3.20%, according to Mortgage News Daily. By the start of June it was falling below 3%.
  • New coronavirus hot spots and continued spread of the disease could derail the trend, an economist warns.
Pending realtor sign
Pending sale realtor sign
Daniel Acker | Bloomberg | Getty Images

Pending home sales spiked a stunning 44.3% in May compared with April, according to the National Association of Realtors.

That is the largest one-month jump in the history of the survey, which dates to 2001. It beat expectations of a 15% gain. Sales were still 5.1% lower compared with May 2019, however.

Pending sales measure signed contracts on existing homes, so it shows that buyers were out shopping during the month of May. Sales had fallen 22% for the month in April, as the economy shut down to slow the spread of the coronavirus.

“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”

The market, however, still needs more supply, Yun noted. “Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”

The supply of existing homes for sale at the end of May was nearly 19% lower annually, according to the NAR. Single-family housing starts in May were not as strong as expected, although building permits, a measure of future construction, did gain some steam.

The supply of homes is still extremely low, but is improving in some markets. Active listings were up by more than 10% for the month in San Francisco, Denver and Colorado Springs, as well as Honolulu.

Buyers came back to the market despite restrictions on open houses in many states. Real estate agents are offering virtual tours as well as individual tours of empty homes, where buyers can open a lockbox and tour the homes themselves. Some buyers are signing contracts on homes they’ve never even entered physically.

Rock-bottom mortgage rates are also helping buyers in a market that remains pricey due to high demand. The average rate on the 30-year fixed mortgage started May around 3.20%, according to Mortgage News Daily. By the start of June it was falling below 3%.

Sales of newly built homes, which are also measured by signed contracts, jumped nearly 17% in May, compared with April, and were 13% higher than May 2019, according to the U.S. Census. Builders have been seeing strong demand from buyers looking to leave densely populated urban areas. They are also benefiting from the shortage of existing homes for sale.

While the recovery was swift in May, the future is not exactly set, especially given the latest spikes in cases of Covid-19.

“Emerging virus hot spots in the South and West could derail the improving trend,” said Danielle Hale, chief economist for “For now, demand remains resilient, but we’re watching the new listings trend as it’s a good indicator of what’s ahead for home sales.”

Regionally, pending home sales in the Northeast rose 44.4% for the month but were down 33.2% from a year ago. In the Midwest, sales rose 37.2% monthly and were down 1.4% annually.

Pending home sales in the South increased 43.3% month-to-month and were up 1.9% from May 2019. In the West sales jumped 56.2% monthly and were 2.5% lower annually.

Posted on June 30, 2020 at 11:34 pm
Ravi Jagtiani | Posted in My Blog |

Working From Home Leads to Rethinking Office Valuations – By Garry Marr CoStar News

BMO Capital Markets Suggests Long-Term Effect on Vacancies Remains to Be Seen

CEO Michael Emory expects Allied Properties' head office in downtown Toronto to reopen July 6. (CoStar)CEO Michael Emory expects Allied Properties’ head office in downtown Toronto to reopen July 6. (CoStar)

One of Canada’s leading investment banks is lowering its target prices for some of the country’s largest publicly traded office landlords, forecasting a modest increase in vacancy rates that can be traced to employees working from home during the coronavirus pandemic.

But BMO Capital Markets said the “jury is still out” on the impact working from home will have in the long term. It’s a debate that’s echoing across the North American real estate industry.

“In our view, growth in the work-from-home trend and the resultant clawback in office space are expected to lead to a modest increase in vacancy rates, based on our proprietary office vacancy model. However, downtown office tech markets in Canada should remain a landlord’s market over the current construction cycle,” according to the report written by analysts Jenny Ma and Gaurav Mathur.

The report suggests COVID-19 has introduced a new and potentially material risk to the office market ecosystem, but BMO said what attracted users to downtown space before will persist.

In an interview, Ma said the takeaway from the report should be that it’s probably too early to call what impact the trend will have on the sector.

“I know that sounds like a cop-out, but there is so much debate and so much chatter, and it’s a bit misguided because the majority of us are still at home and have not returned to the office,” said Ma. “We just don’t know how it will look.”

Nevertheless, the analyst still lowered her target price for the real estate investment trusts she covers, including Allied Properties at $47 as opposed to $52, citing a lower estimate for net asset value.

“We believe that given prevailing uncertainties in the office market, office REITs are likely to trade at discounts to NAV for the foreseeable future. That said, in our view, Allied Properties REIT is a best-in-class office REIT with one of the strongest balance sheets in the sector,” wrote Ma in her report on the company.

Michael Emory, chief executive of Allied Properties, which has a market value just under $5 billion but is trading at about 33% below the high the company’s units reached before the coronavirus was declared a pandemic, said he doesn’t believe there has been a paradigm shift in office work.

“Every operating indicator we’ve experienced during the shutdown suggests that the WFH thing is wildly overblown,” Emory told CoStar via email. “The resulting investor sentiment, however, overhangs our unit price and may continue to do so, at least until we begin the return to a more normal operating environment.”

He said Allied is already preparing to reopen its own office.

“Our Vancouver office reopened on May 18 and our Calgary office on June 15. Our Toronto office is scheduled to reopen on July 6 and our Montreal office on July 20,” said Emory. “My prediction is that the WFH proclamations will prove fairly quickly to be a misguided aspiration on the part of a few technocrats rather than a dramatic value-shift on the part of knowledge workers, and I know from long experience that knowledge workers rule.”

His comments come as companies such as Ottawa-based Shopify and Waterloo, Ontario-based OpenText said they are going forward with a permanent shift away from the office.

Ma lowered her NAV estimates on other companies such as Dream Office REIT and Slate Office REIT too.

“Valuation is at levels not seen in several years and can be considered attractive even with prevailing uncertainty on the office outlook. However, we believe office REITs are likely to be range-bound until there are more definitive indications of where office demand will settle out,” according to the BMO report.

Ma said there is still a reality for companies in constrained office markets that space could be tough to come by when the crisis ends. “If you give up your space, you might not get it back,” she told CoStar.

The BMO report also indicates that greater risk for future development enhances existing office inventory.

Unlike the retail sector, rent collection statistics also show the office sector holding up well with Canadian office REITs collecting in excess of 90% of rent over the past several months, said BMO.

“In fact, for the office REITs, a large proportion of deferred or unpaid rent is attributable to the ground-floor retail tenants, many of which are small businesses that have suffered as they rely almost entirely on office building foot traffic,” according to the report.

Ma said even if collection stalled at 85% of rent paid, she thinks office REITs can hold up very well. “I do think you will have to look at renewals [and their impact],” said the analyst, who predicted office landlords will be more flexible with tenants in the coming months.

Posted on June 30, 2020 at 8:35 pm
Ravi Jagtiani | Posted in My Blog |

Hospitality REIT to Put ‘Anything and Everything on the Table’ to Deleverage

From Negotiating with Lenders to Possibly Selling Hotels, Ashford Hospitality Trust CEO Eyes More Than Survival

One Ocean Resort, an eight-story, 193-room hotel along the Atlantic Ocean in Jacksonville, Florida, is completely booked for Memorial Day weekend. (CoStar)One Ocean Resort, an eight-story, 193-room hotel along the Atlantic Ocean in Jacksonville, Florida, is completely booked for Memorial Day weekend. (CoStar)

For a Texas real estate investment trust with ownership of 116 hotels and nearly 25,000 rooms throughout the United States, its hotel occupancy seemed to have bottomed out in mid-April as a result of the pandemic and hotel closings tied to government mandates.

The financial hit to Ashford Hospitality Trust, a publicly traded REIT based in Dallas, has left it unable to make principal or interest payments under nearly all of its loan agreements beginning April 1, leaving most of its hotel loans in default. In the case of two hotels, lenders have opted to accelerate the defaulted loans totaling more than $135 million.

In an “extraordinarily small” number of loans tied to undisclosed hotels, payments were made for reasons ranging from discussions with lenders to the ability to access certain financial accounts, said J. Robison Hays III, the trust’s newly named president and CEO, during a first-quarter earnings call.

J. Robison Hays III was named president and CEO of Ashford Hospitality Trust in May. (Ashford Hospitality Trust)

“Our goal is to keep as many properties as we can,” Hays told investors during the call. “We are prioritizing our assets as to which ones will recover and which ones are in better equity positions. This will lead to a longer-term strategy of our assets and debt. As we sit here today, we are creating space to do that work by working with our lenders on three- to six-month forbearances.”

For the REIT’s accelerated loans secured by the Embassy Suites Midtown Manhattan and the Hilton Santa Cruz hotel along the California coastline, Hays said he plans to focus on trying to work something out with various lenders in the capital stack.

“This is our only asset in Manhattan proper and we want to keep it,” he said. “We are actively working on coming together for a solution. It’s an asset that’s housing a lot of first responders and workers and is losing money, but we’re hoping to work something out.”

In all, Ashford Hospitality Trust had $4.1 billion of mortgage loans at the end of the first quarter with a blended average interest rate of 4.4%, according to a filing with the Securities and Exchange Commission. For the first quarter, the REIT reported a net loss to shareholders of $94.8 million.

Like the Manhattan hotel, Ashford Hospitality Trust said more than 48 of its hotels have provided temporary lodging for first responders.

Meanwhile, leisure travel seems to be helping the REIT, as well as other hotels, with Ashford Hospitality Trust-owned hotels such as the One Ocean Resort in Jacksonville, Florida, and Lakeway Resort in Austin, Texas, both sold out last weekend by travelers seeking a reprieve from the pandemic. Ashford Hospitality Trust also expects the two hotels to be sold out Memorial Day weekend.

Ashford Hospitality Trust is one of two REITs, along with Braemar Hotels & Resorts, affiliated with Dallas-based Ashford Inc., that returned nearly $126 million of government relief funds meant for small businesses earlier this month after the government changed rules tied to the funding.

Months ago, before the pandemic took hold in the United States, Ashford Hospitality Trust tested the market by putting some undisclosed hotels up for sale, but pricing was estimated to be about 40% off compared to what executives felt the properties were worth. Some hotels could be put on the market again as the REIT looks to deleverage itself, Hays said, adding “anything and everything was on the table.”

“There may be a time when an asset sale make sense,” he said. “We could work with the lender to team up for a sale as part of us restructuring loans. If someone comes in with an offer that’s too good to say no to, the net proceeds would likely go to the lender to pay down debt to get our capital structure into a place where it needs to be today.”

Hays said he’s not fine with simply surviving the economic crisis caused by the pandemic, but is looking for ways to set up the company to grow, raise capital and flourish. He added the REIT came into the pandemic with too much leverage.

“Once we make our way through COVID-19, I anticipate we will spend some time analyzing lessons learned from this crisis and the past decade and will likely update the strategy of Ashford Trust going forward,” he added. “This could include changes to our leverage profile, capital stack, liquidity and investment strategy.”

During the Great Recession, the REIT ended up parting with three hotels, including one in Tucson, Arizona, another in the Chicago area and one in Dearborn, Michigan, he said. This go-around will be “materially worse than that situation,” he added.

Hays declined to disclose how many hotels he believed might be impacted by the economic crisis tied to the COVID-19 pandemic. He said he remains hopeful the REIT will be able to work out forbearance agreements with lenders, but the trust’s executive team are moving forward as if that might not happen.

“We don’t know what the lenders will do, we don’t control it,” he added. “Based on the depth of the problem this will be much more severe than the financial crisis and we are at risk of handing back a few [hotels].”

Posted on May 26, 2020 at 6:11 pm
Ravi Jagtiani | Posted in My Blog |

Loaded With Cash, Real Estate Buyers Wait for Sellers to Crack


The world’s biggest real estate investors are sitting on piles of cash, preparing for once-in-a-lifetime opportunities created by the pandemic.

© Brendon Thorne / Bloomberg  With economies around the world sputtering, commercial real estate prices are expected to come down. How much they’ll fall is the key question.

Sellers are currently willing to concede discounts of around 5%, while bidders are hoping for about 20% off pre-pandemic prices, said Charles Hewlett, the managing director at Rclco Real Estate Advisors. That estimated gap, which is likely wider in specific cases, has put a freeze on deals.

“The mantra for anything that hasn’t gotten started is: delay, defer and, in many cases, renegotiate,” Hewlett said. “If I’m going to have vintage May 2020 on my books, I want to be able to demonstrate to my investors that I got an exceptionally good deal.”

Dry Powder

Private equity firms across the globe hold an estimated $328 billion in dry powder for real estate deployment, according to the data firm Preqin Ltd. Prior to the crisis, asset prices had been pushed up as investors chased yield in riskier corners of the property market. Now, Blackstone Group Inc. and Brookfield Asset Management Inc., the largest real estate investing companies, are expected to hunt for bargains among the fallout from the pandemic.

a screenshot of a cell phone: Ready for Action© Bloomberg Ready for ActionFor now, social distancing rules and a virtual travel halt have stalled transactions and led to speculation that prices will drop in coming months.

“The physical restrictions taking place are mostly preventing new deals from happening,” Tom Leahy, a London-based senior director at Real Capital Analytics Inc. said. “Far fewer active buyers, far fewer deals, an increase of deals falling out of contract — those are the preludes to seeing prices fall when the market does come back.”

The volume of deals in Europe plunged 65% in April from a year earlier, according to Leahy. U.S. and Asian markets faced similar drops.

Asia, where the pandemic began, is likely to recover faster than Europe or America, as Taiwan, South Korea, Japan and parts of China reopen for business, according to Richard Barkham, chief economist for CBRE Group Inc. Transactions in the Americas will fall an estimated 35% this year, compared with a roughly 25% decline in the Asia-Pacific region, he said.

Takes Time

Still, New York-based Blackstone, which had $538 billion in assets under management at the end of March, is “starting to see some rescue situations,” President Jonathan Gray said during an earnings call last month. He added that “distress takes time to play out.”

Brookfield, meanwhile, has $60 billion “ready to be deployed globally as opportunities arise,” Chief Executive Officer Bruce Flatt said last week.

“In reflecting on what really matters to our business, it is liquidity, liquidity and liquidity, in that order,” he wrote in a letter to shareholders.

The firms with money to spend first have to figure out what do do with some of their more vulnerable recent investments. Blackstone said last month that its real estate portfolio, which represents about 30% of its assets under management, is concentrated in “sectors that have shown greater resilience to Covid-related headwinds.”

Still, not all its bets look like winners. In late February, Blackstone announced a deal to buy a $6 billion portfolio of university dormitories in the U.K. popular with international students.

Head Scratching

“Are they scratching their heads about having put money into the student business?” Chris Grigg, CEO of British Land Co., one of the U.K.’s largest commercial landlords, said. “You’d guess they probably are a bit.”

Brookfield made waves with a $15 billion bet on malls in 2018. But with retail stores shuttered and more consumers shopping online, the company recently announced a $5 billion retail revitalization program.

Until shopping, commuting and travel become routine again, it will be hard for investors to agree on what malls, hotels, offices and other properties are worth.

“Proof is really going to be when the markets start to reopen when buyers and sellers find a middle ground with what’s going to happen with pricing,” Real Capital’s Leahy said. “It’s going to be asymmetrical. Different sectors and different geographies are going to be factors. There’s not going to be a uniform recovery.”

Posted on May 26, 2020 at 12:54 am
Ravi Jagtiani | Posted in My Blog |

The economy is tanking. So why aren’t home prices dropping?

The economy is tanking. So why aren’t home prices dropping?

COVID-19 has caused volatility in seemingly everything but housing

More than 38 million Americans have lost their jobs since the outbreak of the COVID-19 pandemic. Stay-at-home orders have ground much of the economy to a halt, prompting trillions in stimulus spending by the federal government in hopes of keeping industries afloat.

But anyone hoping a silver lining to the economic chaos would be deals in the housing market have thus far been disappointed; for the week ending May 9, the median listing price in the United States was up 1.4 percent year-over-year, according to Existing home sales in April fell by almost 18 percent, but prices rose 7.4 percent compared to a year ago.

Why isn’t the tanking economy bringing home prices down with it? It’s a reasonable question given that so much of the economy moves in lockstep, and the last economic crisis in 2008 sent the housing market into free fall.

So what’s different this time around? Let’s break it down. The price of anything is a function of the relationship between supply and demand. Generally, home prices have been pushed up over the last 5 years by high demand created by a then-booming economy and a low supply of housing for sale, due in part to relatively low levels of housing construction and available land on which to build.

After the outbreak of the pandemic, housing demand fell as buyers lost their jobs, part of their income, or simply didn’t want to be shopping for a house in the middle of a viral outbreak and what figures to be a period of great economic uncertainty.

Demand dropping was evident in a number of metrics. Although a weak indicator of buyer demand, traffic to real estate portals like Zillow and Redfin dropped significant in the beginning of the outbreak, as did more reliable indicators like pending home sales and weekly mortgage applications.

Usually, a huge drop in demand would put downward pressure on prices; home sellers would be competing with each other to attract a limited number of buyers by dropping their asking price. But while housing demand has dropped substantially, housing supply also dropped in lockstep as potential home sellers pulled out of the market for many of the same reasons buyers are.

New home listings is a good indicator of housing supply, and after stay-at-home orders were enacted, new home listings cratered by as much as 80 percent year-over-year. Redfin reported that 41 percent of offers were subject to a bidding war over the last month, suggesting demand is outpacing supply—just as it was before the pandemic.

While both supply and demand have dropped, the relationship between the two went largely unchanged, meaning the drops in supply and demand were generally proportional to each other. Furthermore, home sales also dropped after the pandemic hit, and it’s hard for prices to move when there aren’t as many housing transactions to make prices move in aggregate. Together, this leaves prices much where they were before the pandemic.

This is consistent with how housing markets have fared in previous pandemics. A Zillow study looked at housing markets in cities hit by previous pandemics in Asia and found that whole activity dropped, home prices didn’t move much. A good way to think about the housing market at this moment is that it’s on pause—buyers and sellers have left the market, transactions have dropped in response, and prices aren’t moving.

For a comparison point, the relationship between supply and demand was very different before and during the 2008 financial crisis. Prior to the collapse, shady lending practices created excess demand for housing by bringing unqualified buyers to the market. Home builders responded by increasing construction to meet this demand.

When the financial system locked up, it brought the excess housing demand to a halt because banks weren’t able to lend in the same volume—not to mention the recession the collapse induced, which caused unemployment to rise and buyers to drop out of the market.

At the same time, banks foreclosed on houses in the millions. Given housing supply was already high from home builders constructing in excess, this sudden pile up of foreclosed houses created a nightmare scenario for the market—low demand and very high supply. Home prices plummeted.

This scenario is highly unlikely to play out again for two reasons. First, there was already a housing supply shortage prior to the pandemic, so any addition to the housing supply wouldn’t be exacerbating an existing over-supply problem, like in 2008.

Second, a foreclosure crisis on the scale of 2008 is unlikely, at least in the near-term, because the federal government has placed a moratorium on foreclosures on federally backed mortgages and directed the mortgage industry to offer mortgage forbearance for up to a year to homeowners who have been impacted financially by the pandemic.

Assuming this stays in place, a wave of foreclosures won’t lead to a supply spike that puts downward pressure on home prices, but given the situation is fluid, it can’t be ruled out that the federal moratorium is lifted.

And historically, the financial crisis was an aberration with regard to how recessions typically impact housing markets. While 2008 obviously destroyed the housing market, previous recessions have barely moved at all. If anything, prices went up.

While the current conditions haven’t led to a short-term price drop, the long-term economic trends induced will likely effect prices in the future. Zillow economist Skylar Olsen says Zillow is forecasting a price drop of 2 to 3 percent through the end of 2020, depending on the city, compared to where prices were in February.

“We don’t expect prices to fall by too much, at least nothing like the last crisis because housing in general is much more resilient than it was last time,” she says. “We didn’t have excess building driven by excess credit that drove excess homeowners. We don’t have excess in housing.”

There are faint signals that housing markets are slowly building back up. Demand metrics like mortgage applications are up, and pending home sales have returned close to their normal in cities less impacted by the pandemic.

However, pending home sales in cities hit hardest on the coasts remain down significantly year-over-year. And markets across the country remain supply constrained, as new home listings remain down year-over-year even in cities that haven’t been hit has hard by the pandemic.

Posted on May 23, 2020 at 1:00 am
Ravi Jagtiani | Posted in My Blog |