Twitter Inc. reviewed the footprint of its large San Francisco office on Wednesday in preparation for downsizing and canceled the opening of an office in Oakland, Calif., a person with direct knowledge of the company said. ‘affair.
The move clouds the future of the social media site’s sleek San Francisco headquarters, a 1.1 million square foot trophy office complex at 1355 Market Street, where Twitter TWTR,
occupies about 75% of the space, according to data from Trepp.
The tech giants’ budget cuts could have painful ramifications for San Francisco, a city with a skyline and culture radically reshaped in recent decades by a tech boom on its own turf, but also by staggering inequality. and a homelessness crisis made worse by the pandemic.
Twitter said in a statement Wednesday that it was “evaluating our portfolio of offices around the world and scaling certain locations based on usage,” but also that its decision had “no impact on our current headcount or employee roles.
Offices in Seoul; Wellington, New Zealand; Osaka; Madrid; Hamburg; Sydney; and Utrecht, in the Netherlands, were under review for closing when leases expired, a person with knowledge of the matter said. The plan would be to scale offices in Tokyo, Mumbai, New Delhi, Dublin, New York and San Francisco, but scrap plans for a downtown Oakland outpost entirely.
Twitter fought Elon Musk in court after the Tesla Inc. TSLA,
The chief executive has informed the company that he is ending its $44 billion deal to acquire it, after raising the issue of bots and spam on the platform.
A cloud of 9 billion dollars
Beyond Twitter’s headquarters, lenders have financed some $9 billion worth of San Francisco office buildings in recent years by selling commercial mortgage bonds to investors, according to a tally by Trepp.
Once considered a relatively safe real estate bet, especially high-profile properties, office buildings have recently been a source of acute concern for landlords and financiers due to the rise of hybrid working.
“There are a lot of tech companies running San Francisco that aren’t coming back, or coming back the same way,” said Dan McNamara, founder of the distress-focused hedge fund Polpo Capital, a real estate debt investor.
“San Francisco is almost a complete break for us,” he said by phone.
While more workers have flocked to offices compared to pandemic lows, San Francisco still lags other major US cities with an occupancy rate of 38.1% as of July 25, compared to a national average of 44.7%, according to Kastle System’s return to work barometer in 10 cities. .
“It’s just something unimaginable two or three years ago,” McNamara said of the low occupancy levels. Before founding PolPo, he made headlines at MP Securitized Credit Partners for conducting lucrative bets against failing malls.
A need to rethink?
The pandemic and its far-reaching repercussions weren’t on the radar 10 years ago when the oldest loans in ongoing commercial mortgage bond deals would have been underwritten.
The carnage of high-flying technology stocks COMP,
SPX,
in the first half of 2022 made things worse, drying up M&A activity and the IPO market, but also driving cost cuts and cutbacks for many tech companies that inhabit the San Francisco Bay Area .
Twitter shares rose 1.3% on Wednesday, but were 41.7% lower than a year ago, according to FactSet.
See: It’s the end of ‘fantasyland’ for Big Tech and its workers
Daniel Herzstein, director of public policy at the San Francisco Chamber of Commerce, said more tourists, commuters and officers have returned in the past two months. But he also said San Francisco needed to prepare for a new path forward.
“The pandemic has fundamentally changed the way we use offices, and we need to rethink how we view our economy, especially in downtown San Francisco,” he said by phone.
Offices a forbidden zone for lenders?
San Francisco has its own set of challenges, but finding lenders willing to bet big on getting paid off 10 years later on an office building has gotten tougher almost everywhere.
The lack of a clearer picture of the office’s future has made it “very difficult, if not impossible, to finance an office building,” said Robert Verrone, founder of Ironhound Management Company, a restructuring firm real estate in New York. “Most lenders don’t want to do anything.”
Prior to workouts, Verrone worked on Wall Street originating large loans on commercial properties for nearly two decades. He hasn’t yet been asked to help sort out office building debt in San Francisco during the pandemic, but he has worked on retail in the city.
San Francisco, already reeling from remote and relocated office workers, suffered a $400 million drop in tax revenue last year, according to the city comptroller’s office.
While many investors expect more pain for the office sector if tech companies downsize, the pain for older office buildings falling out of favor pre-COVID could be worse.
Tenants have fled rundown buildings for newer ones built since 2015 (see chart), the only category to buck the trend of negative net absorption, or vacant space, according to Deutsche Bank.
Tenants fleeing old buildings.
Deutsche Bank, Jones Lang LaSalle
Loan maturity looms
Borrower Shorenstein Properties, a real estate developer, owes $400 million on a senior mortgage to Twitter headquarters in San Francisco, according to Trepp, a platform specializing in tracking commercial mortgage bond transactions.
A June update said the borrower stayed current, but sought refinancing before the mortgage matured in September. Shorenstein did not immediately respond to a request for comment.
