How San Francisco can tackle two of its biggest issues: office vacancies and housing

Published

2 years ago

December 30, 2022

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San Francisco is facing its highest office vacancy rate since 1993. Commercial real estate firm CBRE said in a recent report that 27.1 million square feet of a total of 90 million square feet is currently vacant.

“The issue started with the pandemic,” said Colin Yasukochi, CBRE’s executive director at its Tech Insights Center. “Prior to the pandemic, in the city of San Francisco, our office vacancy rate was about 4%. Which meant that 4% of all the space, the millions and millions of square feet of space that we had in the city, were vacant. Today, that number is more like 26%.”

With remote work gaining popularity, the problem is only expected to worsen. San Francisco has been referred to as the work-from-home capital of the United States, with the American Community Survey finding that 46% of employees in San Francisco worked from home in 2021, up from 7% in 2019.

To combat the rising number of office vacancies, one local legislator is pushing to convert empty office buildings into residential buildings. Matt Haney, a Democratic state Assembly member, says tackling the empty office problem could help the city take the much-needed steps it needs to address the housing crisis.

“What we can’t do is just leave these buildings empty. That would be bad for our city’s downtown. It would be a total waste,” Haney said. “There are some obvious things that we can look at, where we can meet some of the other needs that we have and actually solve another problem that we have, and that’s our housing crisis.”

Under the Housing Element, the state of California is mandating that San Francisco build 82,000 new units of housing, including affordable units meant for low-income residents, by 2031. In order to meet that goal, the city needs to build 10,000 units of housing per year starting next year. However, San Francisco Mayor London Breed believes that task is easier said than done due to the lack of support from local legislators.

“It’s going to require that we make some major changes that I know our legislative body is not going to be open to,” Breed said. “But if they don’t, what’s going to happen? State support for affordable housing is going to be taken away. Tax credits and all the things that we enjoy to support the ability for us to build housing in the first place in San Francisco is going to be taken away.”

The latest CBRE report published in early December said that office vacancies reached a nearly 30-year high in the third quarter with a vacancy rate of 25.5%. And those rising vacancy rates are having a major impact on the city’s economy.

“We are facing an over $700 million budget deficit, mostly as a result to the challenges around our empty office spaces, as well as we’re seeing businesses closed in the financial district,” Breed said.

CBRE data revealed that so far in 2022 there have been 42 office conversion completions in the U.S., but only 17% of those have been into multifamily homes, while 46% has been office-to-lab conversions.

“The rents that you can get for a life sciences lab space are much higher than office space. So it makes that conversion financially viable,” said Yasukochi. “We have high demand for residential still, but not at the price that would be required for a developer to be able to do that from a financial perspective.”

Under current market conditions, many developers lack incentives to build housing, and strict housing policies often mean developers go through lengthy processes that can turn a profitable project into one that loses money and time.

However, in many cases developers are already at a point where they are investing in costly upgrades. Office conversion typically takes place in older, Class C buildings in need of major repair and remodeling and often in unfavorable locations. While an office-to-residential conversion may require the stripping of a building, in most cases it’s still much cheaper than building from the ground up.

“The most important thing from a developer standpoint is what makes the most financial sense,” said Marc Babsin, president of Emerald Fund, a real estate development company that completed one of the largest office-to-residential conversions in the city at 100 Van Ness Ave.

“There’s a lot of things that are standing in the way of converting office to residential. The biggest one being that the numbers aren’t working today because construction costs are so high. There are things that the government could do to make it easier,” Babsin said.

The San Francisco mayor said the problem is that it takes a long time to build housing, especially given all the requirements.

“We have so many laws on the books already in terms of height limitations, in terms of open space, in terms of number of units, in terms of everything that you have to do to build,” Breed said. “And then on top of that, we make people go through an insane process which takes an extremely long time.”

While office-to-residential conversion is seen as a step in the right direction to address San Francisco’s housing crisis, it is years away from being a solution. Breed says the city needs to build more housing in any manner.

“We just need all housing,” she said. “You know affordable housing sounds good, but when you go through the process to try and get access to affordable housing in this city, it is hard and it is really, really challenging. And the system that we have tried to repair under state and federal law has been very, very difficult to work under. And so as far as I’m concerned, we need to be as aggressive as we can to get more housing built.”

Technology

Super Micro’s 44% plunge this week wipes out stock’s gains for the year

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46 mins ago

November 1, 2024

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Super Micro's 44% plunge this week wipes out stock's gains for the year

Charles Liang, chief executive officer of Super Micro Computer Inc., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.

Annabelle Chih | Bloomberg | Getty Images

Super Micro investors continued to rush the exits on Friday, pushing the stock down another 9% and bringing this week’s selloff to 44%, after the data center company lost its second auditor in less than two years.

The company’s shares fell as low as $26.23, wiping out all of the gains for 2024. Shares had peaked at $118.81 in March, at which point they were up more than fourfold for the year. Earlier that month, S&P Dow Jones added the stock to the S&P 500, and Wall Street was rallying around the company’s growth, driven by sales of servers packed with Nvidia’s artificial intelligence processors.

Super Micro’s spectacular collapse since March has wiped out roughly $55 billion in market cap and left the company at risk of being delisted from the Nasdaq. On Wednesday, as the stock was in the midst of its second-worst day ever, Super Micro said it will provide a “business update” regarding its latest quarter on Tuesday, which is Election Day in the U.S.

The company’s recent challenges date back to August, when Super Micro said it would not file its annual report on time with the SEC. Noted short seller Hindenburg Research then disclosed a short position in the company and wrote in a report that it identified “fresh evidence of accounting manipulation.” The Wall Street Journal later reported that the Department of Justice was in the early stages of a probe into the company.

Super Micro disclosed on Wednesday that Ernst & Young had resigned as its accounting firm just 17 months after taking over from Deloitte & Touche. The auditor said it was “unwilling to be associated with the financial statements prepared by management.”

A Super Micro spokesperson told CNBC that the company “disagrees with E&Y’s decision to resign, and we are working diligently to select new auditors.” Super Micro does not expect matters raised by Ernst & Young to “result in any restatements of its quarterly financial results for the fiscal year ended June 30, 2024, or for prior fiscal years,” the representative said.

Analysts at Argus Research on Thursday downgraded the stock in the intermediate term to a hold, citing the Hindenburg note, reports of the Justice Department investigation and the departure of Super Micro’s accounting firm, which the analysts called a “serious matter.” Argus’ fears go beyond accounting irregularities, with the firm suggesting that the company may be doing business with problematic entities.

“The DoJ’s concerns, in our view, may be mainly about related-party transactions and about SMCI products ending up in the hands of sanctioned Russian companies,” the analysts wrote.

In September, the month after announcing its filing delay, Super Micro said it had received a notification from the Nasdaq indicating that its late status meant the company wasn’t in compliance with the exchange’s listing rules. Super Micro said the Nasdaq’s rules allowed the company 60 days to file its report or submit a plan to regain compliance. Based on that timeframe, the deadline would be mid-November.

Though Super Micro hasn’t filed financials with the SEC since May, the company said in an August earnings presentation that revenue more than doubled for a third straight quarter. Analysts expect that, for the fiscal first quarter ended September, revenue jumped more than 200% to $6.45 billion, according to LSEG. That’s up from $2.1 billion a year earlier and $1.9 billion in the same fiscal quarter of 2023.

WATCH: I don’t know if Super Micro is guilty or innocent, says Jim Cramer

Technology

Apple to buy Pixelmator, the iPhone image editing app with AI features

Published

2 hours ago

November 1, 2024

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Apple to buy Pixelmator, the iPhone image editing app with AI features

Peopl walk outside Steve Jobs Theater at the Apple Park campus before Apple’s “It’s Glowtime” event in Cupertino, California, on Sept. 9, 2024.

Nic Coury | AFP | Getty Images

Apple will buy Pixelmator, the creator of image editing apps for Apple’s iPhone and Mac platforms, Pixelmator announced Friday in a blog post.

Pixelmator, a Lithuanian company, was founded in 2007, and in recent years has been best known for Pixelmator and Pixelmator Pro, which compete with Adobe Photoshop. It also makes Photomator, a photo editing app.

Apple has highlighted Pixelmator apps over the years in its keynote product launches. In 2018, Apple named Pixelmator Pro its Mac App of the year, citing the company’s enthusiastic embrace of Apple’s machine learning and artificial intelligence capabilities, such as removing distracting objects from photos or making automated color adjustments.

“We’ve been inspired by Apple since day one, crafting our products with the same razor-sharp focus on design, ease of use, and performance,” Pixelmator said in its blog post.

Apple does not acquire as many large companies as its Silicon Valley rivals. It prefers to make smaller acquisitions of companies with products or people that it can use to create Apple features. Neither Pixelmator nor Apple provided a price for the transaction.

Pixelmator said in its blog post that there “will be no material changes to the Pixelmator Pro, Pixelmator for iOS, and Photomator apps at this time.”

Earlier this week, Apple released the first version of Apple Intelligence, a suite of features that includes photo editing abilities such as Clean Up, which can remove people or objects from photos using AI.

Apple has acquired other popular apps that received accolades at the company’s product launches and awards ceremonies.

In 2020, Apple bought Dark Sky, a weather app that eventually became integrated into Apple’s default weather app. In 2017, it bought Workflow, an automation and macro app that eventually became Shortcuts, the iPhone’s scripting app, as well as the groundwork for a more capable Siri assistant.

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Technology

Amazon shares jump 7%, approach record after earnings beat

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2 hours ago

November 1, 2024

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Amazon shares jump 7%, approach record after earnings beat

Amazon CEO Andy Jassy speaks at the Bloomberg Technology Summit in San Francisco on June 8, 2022.

David Paul Morris | Bloomberg | Getty Images

Amazon shares jumped 7% on Friday and neared an all-time high after the company reported better-than-expected earnings, driven by growth in its cloud computing and advertising businesses.

The stock is up about 32% for the year and touched $200.50 on Friday. Its highest close was $200, a mark the stock hit twice in July.

Revenue increased 11% in the quarter to $158.9 billion, topping the $157.2 billion estimate of analysts surveyed by LSEG. Earnings of $1.43 topped the average analyst estimate of $1.14.

Sales in the Amazon Web Services cloud business increased 19% to $27.4 billion, coming in just shy of analysts’ estimates, according to StreetAccount. That was an acceleration from 12% a year ago, but trailed growth at rivals Microsoft and Google, where cloud revenue increased 33% and 35%, respectively. Microsoft’s Azure number includes other cloud services.

Amazon’s capital expenditures surged 81% year over year to $22.62 billion, as the company continues to invest in data centers and equipment such as Nvidia processors to power artificial intelligence products. Amazon has launched several AI products in its cloud and e-commerce businesses, and it is also expected to announce a new version of its Alexa voice assistant powered by generative AI.

“Amazon has integrated AI into what is the most diverse tech footprint of any mega cap, with multi-billion revenue streams in e-commerce, advertising, subscriptions, online video, and cloud,” analysts at Roth MKM wrote in a note after the earnings report. They have a buy rating on the stock.

Brian Olsavsky, Amazon’s chief financial officer, said on the earnings call that the majority of the company’s 2024 capex spending is to support the growing need for technology infrastructure.

CEO Andy Jassy said the company plans to spend about $75 billion on capex in 2024 and that he suspects the company will spend more next year.

“The increased bumps here are really driven by generative AI,” Jassy said on the call. “It is a really unusually large, maybe once-in-a-lifetime type of opportunity,” he said, noting that shareholders “will feel good about this long term that we’re aggressively pursuing it.”

Advertising was another bright spot. Sales in the unit expanded 19% to $14.3 billion during the quarter, meeting expectations and outpacing growth in Amazon’s core retail business.

Amazon’s ad growth was about in line with Meta, which saw 18.7% expansion, and faster than growth at Google, which reported a 15% increase in ad revenue. Snap‘s sales also jumped 15% from a year earlier.

Amazon forecast revenue in the current quarter to be between $181.5 billion and $188.5 billion, which would represent growth of 7% to 11% year over year. The midpoint of that range, $185 billion, fell short of the average analyst estimate of $186.2 billion, according to LSEG.

— CNBC’s Ari Levy contributed to this report.