The following report is by CoStar, first reported on April 10th:
The former One AT&T Center, a 44-story high-rise totaling 1.46 million square feet at 909 Chestnut St., is now owned by Boston-based Goldman Group. The firm bought the property via CoStar Group’s Ten-X auction exchange from Somera Road Holdings, a commercial real estate investor and developer that paid just $4.5 million for it two years ago. On a per-square-foot basis, the tower’s value over 18 years dropped from about $140 to $2.50, according to CoStar data.
The block on which the long-vacant property sits was declared a blighted area by the St. Louis Planning Commission in 2023. SomeraRoad had proposed renovating the existing building to develop 306 apartments, 300 hotel rooms and 37,000 square feet of retail, thus reducing the office square footage by 1.2 million square feet.
The company’s plan to redevelop the tower never materialized. Charles Goldman, principal of Goldman Group, wouldn’t disclose to CoStar what his firm intended to do with the property, saying his company was “still digesting the sale.” At 588 feet, the former One AT&T Center is taller than all but the 630-foot Gateway Arch monument in St. Louis and the 593-foot One Metropolitan Square office building.
A redevelopment of the property could face significant challenges as office space use has changed after the pandemic accelerated the adoption of remote and hybrid work policies. Higher interest rates have also led some companies to scale back on costs for real estate and employees.
The nation’s central business districts have seen their office vacancy rate climb from a low of 8.9% in the third quarter of 2018 to 16% this past quarter, according to CoStar data. St. Louis’ current office vacancy surpasses that at nearly 18.6%. Without the empty 909 Chestnut tower, St. Louis’ vacancy would dip to about 14.3%.
AT&T Tower is the second-largest vacant office building in the United States and has been empty since 2017, CoStar data shows. The largest empty office structure in the country is the 1.59 million-square-foot 5400 Legacy Drive in Plano, Texas. Developer NexPoint paid $125 million for that property in 2018 and plans for it to be the center of a $4 billion life science campus that would include hundreds of apartments and a hotel.
The previous sale of 909 Chestnut to SomeraRoad in 2022 resulted in a nearly $123 million loss to bondholders on the commercial mortgage-backed securities market. That was the second-largest such loss on record behind only the roughly $128.6 million loss on a former CA Technologies office complex in Islandia, New York, after the lone tenant there moved out and the property owner defaulted on a $165.6 million CMBS loan in 2016, according to the CoStar data.
In 2006, AT&T sold 909 Chestnut in an 11-year sale-leaseback deal with Highlands REIT. The telecommunications giant moved workers to adjacent buildings starting in 2013, and Highlands defaulted on its CMBS loan on the property about four years later.
The building’s track record of declining value over years of high vacancy highlights how steep Goldman’s uphill road could be. The firm must overcome limited parking in downtown St. Louis, soft demand for office space and a need for a significant investment to modernize the 36-year-old property.
Over the past year, office tenants in downtown St. Louis gave back 270,000 square feet, increasing vacancy to 18.5%, according to CoStar data. That rate is higher than the long-term average of 15.2%.
AUTHOR COMMENTARY
I just learned about this recently, and this is a dangerous sign of what’s to come.
Proverbs 14:15 The simple believeth every word: but the prudent man looketh well to his going.
I have been warning about a collapse in commercial real estate leading to a serious banking bust for a while now, going all the way back to January, 2021, when I first made a mention of it. Now this collapse in commercial real estate, especially felt in office buildings, brought on by the lockdowns and companies shifting towards remote work; coupled with higher interest rates for longer, after years and years of near-0% and banks loading up on bonds, securities, loans, treasuries, etc., will all culminate into a banking bust the likes of which has never been seen before.
To sell a building such as this one reported here for only 2% of what it was bought for is mind-boggling, and is a definite canary in the coalmine of danger ahead.
Fed Chair Jerome Powell admitted earlier this year that there will be bank failures due to banks holding overexposure to commercial real estate, and the FDIC has even warned that a lot of the megabanks are also holding onto a lot of exposure to commercial real estate.
The FDIC just admitted recently that banks are holding onto roughly $517 billion in unrealized losses, and 63 banks are on their danger shortlist of potentially declaring insolvency soon. SEE: Banking Bust: FDIC Reports $517 Billion In Unrealized Losses At Banks, 63 Face Immediate Insolvency
Though slightly dated, I have reprinted my commentary from my report on Powell’s banking collapse admission in March (with a few updates):
Take heed, friend: this commercial real estate bust is the real deal and is no laughing matter. This WILL takedown the banks. Jerome Powell is just trying to whitewash a collapsed barn.
Proverbs 22:3 A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.
To start the year, The Trends Journal gives their annual top trends for the year, and one of them was this banking bust and collapsing commercial real estate market. It was also one of their top trends in 2023, but 2024 will be the year it is finally recognized (which now it is officially). You can read their whole forecast here, but in short they noted:
Banks will take a beating from corporate bankruptcies.
While banks are setting aside more cash against an expected wave of bad loans to office building owners and other commercial property owners, it won’t be enough for many banks that will go bust.
U.S. institutions are estimated to be holding $400 billion or more in unrealized losses from the low-yield bonds they bought during the COVID War and now are unable to sell because investors can earn more interest by buying newer bonds.
In 2024, the banking sector’s troubles will reach crisis levels in some markets and in some countries. The number and rate of bank failures will increase, leaving fewer small banks and helping large banks get even larger, reducing the benefits that competition and small companies can offer consumers.
Because banks are a collecting point for economic bad news among consumers and businesses, their stocks will be an early bellwether to watch for the first signs of not only an economic downturn… but most importantly a market crash, as the banksters did in creating the Panic of ’08.
For the week ending [June 10th], Kastle Systems reports that current average office occupancy rate for the 10th largest U.S. cities sits at a dismal [51.6%].
As of November of last year, it was reported that 20% of U.S. offices in total in the U.S. are vacant. That’s one of out of every five.
Last month Commercial Edge released a detailed breakdown of some of the numbers concerning commercial real estate. The firm wrote:
The office real estate sector is currently facing steep discounts in asset values due to post-pandemic effects and rising interest rates, with average property values down by at least 25%, according to the latest U.S. office market report.
The downward trend in office valuation is more pronounced in older and less ideally located buildings. Over 20% of office properties sold since the start of 2023 have fetched lower prices than their previous sales. CBD offices have been hit the hardest by the changes wrought by the pandemic, with 35% of properties trading at a lower sale price last year. For example, in Washington, D.C., a 13-story building with ground-floor retail sold for $18.2 million in 2023, down 70% from its 2017 price tag of $61.8 million. At the same time, only 21% of properties sold in the suburbs recorded a decline in value.
Moreover, an astonishing $900 billion is commercial real estate loans are coming due very soon, and banks will have to absorb this crunch soon.
Needless to say, the banks are going down hard and fast and you need to be prepared for that. Thus, as I have regularly warned, you need to get your money out of the banks and keep the necessary amounts there to keep a running balance, pay bills and make online purchases. Do not keep more than you need to and can’t afford to lose. Also, transferring your money into other assets may prove to be advantageous. Some gold and silver, for example, is by no means fool proof, but it is at least safer than other things; but I still recommend prioritizing food and water, brass, clothing, heat, shelter, etc., especially if you are strapped (Proverbs 11:4).
Ultimately, what we are witnessing is a mass-consolidation, with central banks fulfilling their endgame of being the buyers and lenders of last resort.
Proverbs 22:7 The rich ruleth over the poor, and the borrower is servant to the lender.
At the time I said “rate cuts were a lock,” but so far that has not panned-out in the United States. Other central banks pivoted, but the Feds are now indicating that they perhaps only one cut is coming this year…
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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On this episode of Economic Collapse episode 4442…we witness skyscrapers worth millions go under.
The jig is up, America!