Leaving New York City

[DooDiligence]

Not just NYC, I noticed a massive exodus of Seattle as well. Just check redfin listings for Seattle. Lots of listings, especially condos, with hardly any buyer taking a tour.

Make sense though. Large city with many renters, large population of young and single people and high cost. But I bet Seattle suburbs are white hot.

I'm throwing 700k cash offers at 3bed/1bath 1,000 sq ft houses  in the east bay of San Francisco. I'm not even competitive apparently...

Right. Seattle Suburbs are white hot not only because of the virus but also because of the socialism movement in Seattle, with BLM protesters matching into communities and yelling door to door "Move your white ass out of the house and give your stocks to us, because it belongs to us"

Meanwhile in the real world.

www.bloomberg.com/news/articles/2020-10-30/brookfield-pays-365-million-for-facebook-office-outside-seattle

[LearningMachine]

Not just NYC, I noticed a massive exodus of Seattle as well. Just check redfin listings for Seattle. Lots of listings, especially condos, with hardly any buyer taking a tour.

Make sense though. Large city with many renters, large population of young and single people and high cost. But I bet Seattle suburbs are white hot.

I'm throwing 700k cash offers at 3bed/1bath 1,000 sq ft houses  in the east bay of San Francisco. I'm not even competitive apparently...

Right. Seattle Suburbs are white hot not only because of the virus but also because of the socialism movement in Seattle, with BLM protesters matching into communities and yelling door to door "Move your white ass out of the house and give your stocks to us, because it belongs to us"

BLM protests were just in one block, that too a while back, and overwhelming majority of folks participating were white.  Yes, there is a small risk that City of Seattle itself could have a tiny income tax sometime in the future, but so far WA State Supreme Court has been shooting it down, and keeping City of Seattle as well as WA state income tax free.

There are two key items impacting decision-making the most currently:

• #1. Post-Covid WFH policy changes: The crux that is impacting decision-making most is post-Covid permanent Work-From-Home announcements.  No-one wants to pay for being 15-minutes to Amazon, Microsoft, Facebook, or Google anymore.  Because of announcements by Google, Facebook, and Microsoft that post-Covid, people don't have to come to office every day permanently, folks who used to look for housing within 15-minutes, are willing to look farther out, as much as 60 minutes for their dream house, especially if they have family.  People are buying all the way in Kitsap Peninsula, Island County, and farther up North in Snohomish County, even Skagit County.  Number of options have gone up by orders of magnitude.  1-mile radius for being able to walk to work used to cover only pi square miles.  30-mile radius covers 900pi square miles. 
  
• #2. Avoid multifamily due to Covid risk: Currently folks also want to avoid high-density due to Covid risk.  However, once we are all vaccinated, this trend will stop.

Because #2 trend will stop soon and reverse itself, while #1 trend will continue, there will be a net-effective increase in supply of housing.  In Detroit, 20% vacancy/supply caused a huge drop in real estate.  The price drop will be felt even in the suburbs immediately close to Microsoft, Google, Facebook and Amazon.  Post-vaccine, the only winner I see is exurbs, and that might not be very big either because effective overall supply has gone up for well-paid folks who won't have to go to office every day.

[SharperDingaan]

Just to throw it out ...

There are a great many towns in the Toronto Golden Horseshoe where developers are offering the penthouse floors of new built/to-be-built condos at very attractive incentives. 35-40%+ discounts, taken as either free upgrades or extended periods of reduced condo fees. If the intent going into retirement; is to either flip the SFH (now too big), or the newly acquired condo; it can be very attractive 

Think outside the box a bit.

SD


 

[LearningMachine]

Not just NYC, I noticed a massive exodus of Seattle as well. Just check redfin listings for Seattle. Lots of listings, especially condos, with hardly any buyer taking a tour.

Make sense though. Large city with many renters, large population of young and single people and high cost. But I bet Seattle suburbs are white hot.

I'm throwing 700k cash offers at 3bed/1bath 1,000 sq ft houses  in the east bay of San Francisco. I'm not even competitive apparently...

Right. Seattle Suburbs are white hot not only because of the virus but also because of the socialism movement in Seattle, with BLM protesters matching into communities and yelling door to door "Move your white ass out of the house and give your stocks to us, because it belongs to us"

Meanwhile in the real world.

www.bloomberg.com/news/articles/2020-10-30/brookfield-pays-365-million-for-facebook-office-outside-seattle

Facebook's WFH announcements and having desirable office-space are not entirely inconsistent.  Younger folks do like to go into office once in a while to socialize.  What will be different now is that the younger talent won't be required to come into office every day, and won't pay $3000 rent to be at a walkable distance to Facebook office building.

In the meantime, within Facebook in the real world, after the WFH policy announcements, there has been such a tremendous demand for requesting permanent WFH processing that Facebook had to structure it in waves, and put people on waitlist for future waves, which will take months to process even though they are processing as fast as they can.

Just imagine what the residential demand next to Facebook buildings will look like once Facebook has gone through all the internal permanent WFH processing waves.

Microsoft doesn't require any processing for WFH up to 50%.  So, once folks are vaccinated, taking away pressure from people's desire to avoid multifamily, imagine what will happen to residential demand next to Microsoft buildings.   If we get vaccinated by March, effects of increased supply of options should start to show up next summer.

[Gregmal]

I dont know how much one can take from the current situation other than simply acknowledging that some of these things already existed and will just progress with time. Covid is only a short term headwind. But the larger trends of high taxes in some of the places, anti business policy, and now violence...are bad, but will too pass.

The current opportunity depends on your time horizon, and big baller status. Guys who answer to no one and who have shown to be opportunistic, like Flatt, Bezos, Zuck, etc.... theyre active and buying. They see that things will go back to normal, eventually. But other than that, who is going to pull the trigger today? If you're a Sr VP and heading up the division responsible for managing RE and signing leases, no way in hell you're going to be the guy who signs a lease in the middle of a pandemic; raging civil unrest, unprecedented violence, and widespread lockdowns... how do you explain that to your boss, who then has to explain that to the CEO, who then has to answer to the Board, who then has to answer to short term centric shareholders?

Everything really makes sense within context. Its not surprising, its an easy opportunity, but I dont think it will be get rich quick.

[LearningMachine]

I dont know how much one can take from the current situation other than simply acknowledging that some of these things already existed and will just progress with time. Covid is only a short term headwind. But the larger trends of high taxes in some of the places, anti business policy, and now violence...are bad, but will too pass.

The current opportunity depends on your time horizon, and big baller status. Guys who answer to no one and who have shown to be opportunistic, like Flatt, Bezos, Zuck, etc.... theyre active and buying. They see that things will go back to normal, eventually. But other than that, who is going to pull the trigger today? If you're a Sr VP and heading up the division responsible for managing RE and signing leases, no way in hell you're going to be the guy who signs a lease in the middle of a pandemic; raging civil unrest, unprecedented violence, and widespread lockdowns... how do you explain that to your boss, who then has to explain that to the CEO, who then has to answer to the Board, who then has to answer to short term centric shareholders?

Everything really makes sense within context. Its not surprising, its an easy opportunity, but I dont think it will be get rich quick.

Regarding Zuckerberg, I'm assuming you are referring to office real estate decisions in Bellevue and Manhattan.  Things don't have to go back to normal, eventually, for those decisions to make sense for Facebook's desire for young talent.  At the same time, I hope you are also not ignoring that Zuckerberg has announced that 50% of Facebook employees will be WFH permanently.  From talking to Facebook employees, they are saying 50% doesn't apply to engineering and highly paid folks, all of whom are allowed to apply for permanent WFH processing.

Regarding Bezos, I'm assuming you are referring to office real estate decisions in Bellevue, Manhattan and D.C.  Those decisions were made at a time when Bezos hadn't yet heard about his competitors offering WFH policies.  Amazon has always been the last one to care about employees.  The only thing that causes them to care is when they start to lose people to competitors.  Now, Amazon is starting to walk away from Seattle real estate.

Regarding Flatt, I'm not sure if I would put him in the same bucket as Bezos and Zuckerberg.  He has an incentive to pump up things. Not impressed by their head-stuck-in-sand type comments I heard a few months ago about denying anything is going to be different.

So, I think saying that everything will go back to normal, eventually, is a little simplistic.  We need to look at the reasons driving them, and those reasons may still be consistent with things not going back to exactly the way it was.

[LearningMachine]

I think Bill Gates probably has the best most-reasonable prediction:

"My prediction would be that ... over 30% of days in the office will go away," Gates said.

https://www.weforum.org/agenda/2020/11/bill-gates-pandemic-covid-coronavirus-work-travel-business-digital/

That has impact on residential housing immediately next to most-desirable office buildings that do survive.

[Gregmal]

WFH is highly overblown. Sure, it will continue and progress. But you miss the fact that it may be in the interests of many of these folks to tout worker friendly "choices" surrounding WFH. That doesnt mean people will want it. People have loved city centers for as long as there have been civilizations. Young people want bars, clubs, restaurants, and lots of sex. This only happens in the cities. Or put another way, it doesnt happen rurally, and unless you're looking to boink soccer moms, doesnt happen in the burbs. The cities from a real estate perspective are trophy assets. Its supply and demand. With the degree to which capital is gushing into every corner of the universe, even a reasonable demand decline is more than offset by lower rates and greater number of dollars chasing fewer and fewer available assets.

If you want to make an excuse for why guys like Bezos, Zuck, Flatt, etc are buying, fine. I'd prefer to just take it for what it is. It isn't one guy being an outlier...its multiple people and firms who are known for being savvy and opportunistic, doing so. If nothing else its proof of the above. Rich get richer, have more money to deploy....so they deploy it. Brookfield has a whole lot more capital to pour into these assets, and so do a lot of other HNW individuals, institutions, etc. Its the same reason you're seeing shopping centers and retail properties in prized locations selling at record prices, despite a much more dire narrative surrounding them. If anything thinks 5 years from now you see NY RE trading hands at $300 sq/ft....youre simply out to lunch.

[LearningMachine]

WFH is highly overblown. Sure, it will continue and progress. But you miss the fact that it may be in the interests of many of these folks to tout worker friendly "choices" surrounding WFH. That doesnt mean people will want it. People have loved city centers for as long as there have been civilizations. Young people want bars, clubs, restaurants, and lots of sex. This only happens in the cities. Or put another way, it doesnt happen rurally, and unless you're looking to boink soccer moms, doesnt happen in the burbs. The cities from a real estate perspective are trophy assets. Its supply and demand. With the degree to which capital is gushing into every corner of the universe, even a reasonable demand decline is more than offset by lower rates and greater number of dollars chasing fewer and fewer available assets.

If you want to make an excuse for why guys like Bezos, Zuck, Flatt, etc are buying, fine. I'd prefer to just take it for what it is. It isn't one guy being an outlier...its multiple people and firms who are known for being savvy and opportunistic, doing so. If nothing else its proof of the above. Rich get richer, have more money to deploy....so they deploy it. Brookfield has a whole lot more capital to pour into these assets, and so do a lot of other HNW individuals, institutions, etc. Its the same reason you're seeing shopping centers and retail properties in prized locations selling at record prices, despite a much more dire narrative surrounding them. If anything thinks 5 years from now you see NY RE trading hands at $300 sq/ft....youre simply out to lunch.

Gregmal, we don't have to think in extremes, but can try to handicap in a rational manner. 

I'm not saying NY RE will be trading hands at $300 in five years. I'm also not saying that young people won't like to be in cities for dating, etc.  I'm not sure why you are assuming that is what I am saying.

[Gregmal]

I kind of assumed that, along with your quite bearish tone because that is what you had conveyed in some other threads. I think in the ESRT thread you were talking about $100-$200 sq/ft.

The thread is about NY, and if those couple things return, ie nightlife, entertainment, etc...so will the people. They do have an interest to get crime down, although there's tended to be cyclical trends with that, and it is not uncommon for there to be high crime during periods of economic disarray. Those issues shakeout, and you'll be seeing record prices again. Similar areas will likely see similar progression. If this isn't what we are talking about, then I dont now what we're doing in a thread about folks fleeing NYC.

So if we are talking about this as an investor, there's really not a whole lot of "risk" posed to NYC or major city hubs, by WFH. The risk is that the drivers that make the city attractive go away...this is a low probability risk IMO.

If we are just talking in general about a hiccup in terms of demand...so what? Thats what cycles are.

If it isn't any of the above, then I am not quite sure what you are saying.... If anything, I think WFH is a ticking time bomb for suburban office space. Although anecdotally, I've been able to WFH since 2014. I've leased 5 different offices during this time and still pretty much did a hybrid 3/2 type of thing. I was still paying the full rent. Most offices in non prime locations regularly operate at below 100% occupancy and have had no problem gradually raising prices either. Either way, cities will be fine. The question is when, not if.