Re: In Nancy Pelosi's shithole San Francisco, Government Failure Erases Billions of Dollars of Commercial Real Estate Valuations

NRA GUNCRIME <[email protected]> wrote in
news:[email protected]: 

> Nancy Pelosi suckered San Francisco voters into destroying the city.

San Francisco is proving to be ground zero in the nationwide commercial 
real estate collapse. While the values of offices and malls are tumbling 
in many US cities, the losses in San Francisco are more dramatic and, 
unlike elsewhere, have extended to hotels. City and state government 
mismanagement have played a major role in destroying billions of dollars 
in assessable real estate values, but the role of these policies is easily 
overlooked.

San Francisco’s plight was thrown into sharp relief on June 5, when the 
owner of two downtown hotels containing a combined 2,925 rooms announced 
that it would cease making payments on a $725 million mortgage backed by 
the properties. Commercial bond investors will now have to find a company 
willing to purchase the hotels at a small fraction of their estimated 2020 
valuation of $1.561 billion.

In explaining the company’s decision to walk away from the hotels, Thomas 
J. Baltimore, Jr., Chairman and Chief Executive Officer of Park Hotels and 
Resorts stated:

After much thought and consideration, we believe it is in the best 
interest for Park’s stockholders to materially reduce our current exposure 
to the San Francisco market. Now more than ever, we believe San 
Francisco’s path to recovery remains clouded and elongated by major 
challenges – both old and new: record high office vacancy; concerns over 
street conditions; lower return to office than peer cities; and a weaker 
than expected citywide convention calendar through 2027 that will 
negatively impact business and leisure demand and will likely 
significantly reduce compression in the city for the foreseeable future.

Another nearby hotel is also experiencing a dramatic valuation decline. 
The 1,195-room Westin St. Francis Hotel has asked the local tax assessor 
to slash the combined assessment of its two parcels from $1.037 billion to 
$101 million.

The hotels are within walking distance of the Westfield San Francisco 
Centre mall that is losing its anchor retailer, Nordstrom, this summer. 
Before Nordstrom announced the closure, S&P had already estimated that the 
mall’s value had declined by over 70% since it was appraised in 2016.

An even larger value decline was suffered by a 22-?story office tower at 
350 California Street. After being valued at around $300 million in 2019, 
the property recently changed hands for between $60 million and $67.5 
million according to media reports.

When considering why San Francisco has suffered so much commercial real 
estate value destruction in the 2020s, it is tempting to conclude that the 
city’s tech-?heavy workforce was better equipped to work from home. This 
factor played a role but should not be overestimated. Indeed, one common 
software development methodology, known as agile, often involved daily in-
?person team meetings. So, it is not strictly true that software 
engineering is a solitary job.

Rather than blame the pandemic or the local business mix, San Francisco 
and California political leaders should look inward at their policy errors 
that exacerbated the city’s distress. Among these unforced errors were 
their harsh lockdown policies and the failure to provide adequate security 
in the downtown core.

The Lockdown

San Francisco and neighboring counties were the first to impose sweeping 
stay-?at-?home orders at the beginning of the COVID pandemic in the US. 
More importantly, San Francisco and its neighbors were slower than most 
other population centers to relax COVID-19 restrictions.

Over a three-?year period, San Francisco’s public health officer issued a 
blizzard of rules that were often lengthy and challenging to implement. As 
late as January 27, 2021 (over ten months into the pandemic), he issued an 
order that required “all residents in the County to reduce the risk of 
COVID-19 transmission by staying in their residences to the extent 
possible and minimizing trips and activities outside the home.” At the 
time, California had more cases per capita than the less restrictive 
states of Texas and Florida, begging the question of how effective 
lockdown measures were.

By continuing shelter-?at-?home restrictions for so long, San Francisco 
normalized remote work, thereby encouraging employers and employees to 
adopt to a new normal. Many employees moved beyond easy commuting distance 
from the city on the assumption that they could retain hybrid or fully 
remote work arrangements permanently.

Although San Francisco’s political leaders trumpet the city’s low per 
capita death rate from COVID-19, some of that is attributable to 
individuals temporarily or permanently leaving the area, thereby deflating 
the true denominator of any death rate calculation. Economist Stephen 
Hanke has concluded that lockdowns had “a negligible effect” in COVID 
deaths.

Lack of Security

As the accompanying map shows, San Francisco has a very high concentration 
of high value properties in a small geographic area. Many of these $100 
million plus properties (based on assessed value) are within walking 
distance of the Tenderloin neighborhood which has struggled over several 
decades. But in recent years, the social problems of the Tenderloin have 
increasingly spilled over into the adjacent, high-?value areas, deterring 
tourists, shoppers, and office workers from visiting.


Measuring crime trends is challenging. According to Police Department 
statistics, reported crimes in the first five months of 2023 are below 
pre-?pandemic levels. But some proportion of crime goes unreported and it 
is possible that this proportion has increased given the low likelihood 
that San Francisco police will identify a suspect. In 2022, only 2.9% of 
larceny thefts were cleared within one year.

Also, residents clearly perceive an increase in crime. The most recent 
City Controller survey found that San Franciscans rated the city’s safety 
a C+, the lowest grade since 1996. Safety ratings were especially low in 
the Tenderloin and two adjoining neighborhoods with high-?value commercial 
real estate: South of Market and Financial District/?South Beach.

Critics have highlighted various public safety policy concerns including 
the defund the police movement, lax prosecution, reclassification of 
shoplifting goods worth less than $950 as a misdemeanor, disincarceration, 
and lack of enforcement against open air drug markets. Since these issues 
have been covered elsewhere and libertarians have varying opinions about 
them, I’ll address a couple of other aspects that have received less 
attention.

First, the city has encouraged many individuals who may be more prone to 
criminal activity to concentrate in and around the Tenderloin. It has done 
this by establishing a cluster of thousands of supportive housing units, 
mostly in converted hotels in the area. Although residents of supportive 
housing are no longer defined as “homeless”, many if not most are still 
dealing with issues such as drug addiction that contributed to their loss 
of shelter.

During the pandemic, the city converted hundreds of additional hotel rooms 
in the area to temporary residences for unhoused homeless individuals in 
hopes of preventing them from getting and spreading COVID-19. But the 
unintended effect of this program, known as Project Roomkey, seems to have 
been to increase drug abuse and disorder at the periphery of the 
Tenderloin.

One Project Roomkey property, Hotel Whitcomb, housed about four hundred 
homeless individuals, many of whom were continuing to use drugs. Shortly 
thereafter, a new open air drug market became established in an alley just 
south of Market Street. Both the hotel and the drug market were near a new 
Whole Foods store which was forced to close due to high rates of theft and 
violent criminal activity.

Aside from concentrating potential offenders in the area, the city and 
activists appear to have neutered two quasi-?private mechanisms that allow 
business districts to enhance security levels beyond that which the city 
government would normally provide.

Since 1847, San Francisco has had a category of law enforcement officers 
known as a Patrol Special Police. These trained officers can be directly 
hired by groups of merchants and/?or homeowners to patrol and provide 
other security services within a designated area. In 1994, there were 72 
patrol special police serving 65 areas. But their ranks decreased in 
recent decades and, as of 2022, only one officer remained.

Although clients expressed a high level of satisfaction with their 
services, city policies have decimated the program. San Francisco’s 
charter requires the city’s Police Commission to approve new patrol 
special officers, but in recent years it has rarely done so. At the same 
time, the San Francisco Police Department offered a competing program 
under which city-?employed police officers could provide security services 
to local business when they would otherwise be off duty.

Since clients must cover officer pay at overtime rates, this alternative 
is more expensive. Further, given the shortage of police officers in San 
Francisco today, there may not be enough staff to regularly serve clients 
who might be interested in purchasing their services.

California has also given property owners the ability to form their own 
Business Improvement Districts (BIDs) since the 1990s. BIDs, also known 
locally as Community Benefit Districts (CBDs), are formed when owners 
representing a majority of the assessed valuation in a given area vote to 
tax themselves to finance district operations.

San Francisco’s Union Square area, the hotel and retail center that 
borders the Tenderloin, has had a BID in place since 1999. By 2018, the 
district was employing a large staff of cleaning ambassadors and safety 
ambassadors to deal with trash and quality of life issues respectively. 
The BID also installed a network of security cameras.

But the district’s efforts to force homeless individuals out of the area 
faced criticism from UC Berkeley’s Public Policy Clinic and local 
activists. Since the pandemic, the BID, now known as the Union Square 
Alliance, may have become less effective at maintaining cleanliness and 
safety in its neighborhood. It is not clear whether this is due to the 
criticism it has received, the retirement of its long-?time executive 
director, or some other factor.

Conclusion

An overly energetic lockdown and actions that concentrated violent and 
unstable individuals in the downtown area have contributed to the collapse 
of real estate values in San Francisco’s prime hotel, office, and retail 
districts. Quasi-?governmental institutions that might have stepped in to 
provide improved security and street conditions have been enfeebled in 
part by city policy.

At this point, it does not appear that any set of feasible policies can 
restore downtown San Francisco to the heights it reached in 2019. A more 
realistic possibility is that it will stabilize at much lower levels of 
occupancy, activity, and value forming a new base from which to grow. New 
and remaining property owners should be given the tools and the space to 
restore a sense of security among those visiting, shopping, and staying in 
the neighborhood. Finally, city and state leaders should avoid 
overreacting to pandemics.

https://www.cato.org/blog/san-francisco-government-failure-erases-
billions-dollars-commercial-real-estate-valuations