Chinese Firms Flee U.S. Commercial Real-Estate Market After Big Property Bets Sour
Chinese companies have sold a net $23.6 billion of U.S. commercial properties since the start of 2019. That marks a dramatic turnaround. Between 2013 and 2018, Chinese firms were net buyers of nearly $52 billion of U.S. commercial properties. Buyers from China snapped up aging U.S. office buildings, development sites and hotels, particularly in Manhattan, where they often made headlines for paying top dollar.
Anbang Insurance Group acquired New York City’s famed Waldorf Astoria hotel in 2015 for $1.95 billion, the biggest price tag ever for a stand-alone U.S. hotel. Chinese investment in U.S. properties started falling four years ago, around the time that Chinese regulators made it harder for many companies to move money out of the country. Some of the most active buyers ran into financial trouble. Political relations between the U.S. and China also worsened, another drag on investment. Chinese firms never accounted for a large share of overall investment in U.S. commercial real estate, even during their prime buying period. But they had an outsize influence on the market.
When Chinese firms paid large sums for high-profile buildings in Manhattan, these deals often became benchmarks for nearby properties and emboldened other sellers to demand similarly steep prices. These Manhattan deals, in turn, sometimes became reference points for property values in other cities. In this way, the impact of Chinese money trickled through the U.S. commercial real-estate market, helping to push up values across the country.
Chinese investors’ recent travails share similarities with the wave of Japanese investment that rolled over the U.S. real-estate market in the late 1980s and early 1990s. Japanese firms paid steep prices for famous office properties, including New York’s Rockefeller Center, during a property-market boom, and suffered steep losses when the market turned. And while Chinese bids on U.S. properties are now rare, Korean, German and Singaporean firms have picked up the slack.
Cohen Brothers’ NYC International Plaza Loan Returns to Special Servicing
The remaining $126.8 million balance of Citigroup’s commercial mortgage-backed securities loan for Cohen Brothers Realty’s International Plaza office skyscraper in Midtown Manhattan has reverted back to special servicing due to looming default. The outstanding debt, which is part of a $130 million loan split between the GSMS 2015-GC34 and CGCMT 2015-GC35 CMBS conduit deals, was 30 days delinquent in September, according to Trepp and CRED iQ. The loan, which matures in October 2025, was previously sent to special servicing in July 2021 and has been delinquent seven times.
Cohen Brothers tapped into a $7.7 million reserve established as part of Citi’s 2015 CMBS financing after law firm Locke Lord vacated roughly 119,000 square feet, which comprised about 31.2 percent of the building’s rental area in June 2016. The property, which was 71 percent occupied in 2021, has encountered cash-flow challenges stemming largely from Locke Lord’s exit and a distressed office market during the COVID-19 pandemic.
Big Banks Pulling Back On New CRE Loans As Interest Rates Rise
Wells Fargo & Co, Bank of America Corp, Morgan Stanley, Goldman Sachs Group and JPMorgan Chase & Co. are all tightening their purse strings when it comes to commercial real estate, issuing fewer new loans and having stricter terms on those they do issue. The drop-off is noticeable because in the first half of this year, U.S. banks lent $316B in net new commercial real estate loans. The lending boom represented a 172% increase over H1 2021 numbers and came as higher interest rates made borrowing twice as expensive.
Commercial lending from the biggest banks could be down as much as 50% in the latter half of this year compared to the first if the current pace holds. Projections from the Mortgage Bankers Association anticipated that commercial and multifamily lending could fall to $733B this year, an 18% drop from 2021. Office is often singled out as the most vulnerable asset class at the moment, mainly due to the lingering uncertainty about whether workers will ever return to their workplaces at a large enough volume to sustain the property type.
Related Pursues Giant Casino Complex at Manhattan's Hudson Yards
Related Cos., founded by billionaire Stephen Ross, is partnering with Wynn Resorts Ltd. to pursue a casino license on the Western Yards. The plan is to build an entertainment and gaming resort along New York’s Hudson River. While Related has previously expressed interest in the possibility of being involved in a casino development, the partnership with Wynn marks an official step in its pursuit of a license. The proposal would situate a casino in the Western Yards, located next to the Javits Center, the massive convention center that recently went through a $1.5 billion expansion.
The Western Yard is the second phase of Related and Oxford Properties’ Hudson Yards project, occupying the area from 11th to 12th avenues between West 30th and West 33rd Streets. Related had initially planned to build residential buildings, offices and a school at the site. Any casino project will have to be vetted by various state and local officials.
Remote workers are wasting their time proving they’re actually working
In a new study by Microsoft, nearly 90 percent of office workers reported being productive at work, and objective measures — increased hours worked, meetings taken, and amount and quality of work completed — prove them out. Meanwhile, 85 percent of bosses say hybrid work makes it hard to be confident that employees are being productive. That uncertainty, coupled with a looming recession and many companies moving back to more time in the office, is prompting workers to increasingly show that they’re working — which is decidedly not the same as actually working. Rather, it’s what some have called “productivity theater.”
Productivity theater is when workers frequently update their status on Slack or toggle their mouse to make sure the status light in Microsoft Teams is green. They say hello and goodbye, and they drop into different channels throughout the day to chitchat. They check in with managers and just tell anyone what they’re working on. They even join meetings they don’t need to be in (and there are many more meetings) and answer emails late into the night. On their own, these are small expenditures of time, and some of them are useful. En masse, they’re a dizzying waste of time. In addition to their regular working hours, office workers said they spend an average of 67 extra minutes online each day (5.5 hours a week) simply making sure they’re visibly working online.
Workers everywhere are feeling burnt out by this behavior. In other words, fears about lost productivity could cause lost productivity. About a third of all workers said they feel more pressure now to be visible to leadership than they did a year ago, regardless of their work accomplishments. Who’s driving all this productivity theater? Employees and employers, but mostly employers. Workers feel as though they’re paying for the privilege of working from home and don’t want to get axed in a coming recession.
Bosses are signaling that they prefer in-office work — requiring it, overlooking some remote workers, and overburdening others — and they hold a lot of the strings. It’s widely understood that remote work doesn’t sap productivity. What’s more open to discussion is whether people are particularly collaborative or creative from home — or whether they’re doing too much work to be either. Creating an environment where workers spend extra time showing that they’re working is not helping anything.