[alephnerd]

> Certainly you must agree retrofits are cheaper than building an entire new building.

Yes I agree with you, but who pays for it? JLL and CBRE are large and diversified enough that they can eat the cost of their SF commercial properties being vacant.

It doesn't make sense for them to spend funds on retrofitting their properties into apartments when they can regeotiate their mortgage commitment to be much more amenable in the short term, especially when similar residential properties in SF like NEMA, The Gateway, and others continue to have elevated vacancy rates.

You can't force private businesses to do residential retrofits - they'll only do it if there is a viable financial case for them to do it.

Most luxury residential property in SF is owned and managed by Greystar, Avalon, and UDR. These are different companies from JLL and CBRE who own the vacant office buildings. At that point, who pays for the retrofit - JLL+CBRE or the residential landlords line Greystar+Avalon+UDR? It doesn't make sense to either because they are large, diversified international companies that have better opportunities to deploy the capital they have at hand (eg. NoMA in DC, NYC, etc). Why spend $1-2 billion renovating+retrofitting when you can spend the same amount with a better RoI in other markets.

[RC_ITR]

I really can't emphasize enough that residential in SF generates $55/sqft/year, which in almost every US market outside NYC, is more than you get for commercial anyway. If SF commercial generates meaningfully less than $55/sqft/year (which it is clearly on track to do), you don't need to force anyone to do anything.

To your capital allocation point, you're lucky to get $40/sqft/year in DC.

This is real money you're talking about. It's not some pie in the sky idea that a residential building in SF is profitable.

The line of argument that conversion can't be done is just repeating things that were true before the pandemic and that commercial lenders/developers hope will be true again.

If buildings default, all the commercial owners/lenders eat the capital loss (hence their current loud and public press tour about why conversions are not feasible), a new buyer buys at a lower cost basis and then converts. Why is that extremely practical outcome so outlandish?

SF office buildings are already trading at 75% 2019 prices. If you (as the new low cost basis buyer) can yield even 25% more by residential converting why wouldn't you?

[zamnos]

I hear you on all that, but that seems to be an argument that corporations with headquarters outside the bay area (like landlords who live outside the bay area) shouldn't be allowed to own real estate in San Francisco.

[alephnerd]

Not really. Adding a regional ownership test de facto violates the Commerce Clause in the Constitution.