Max's take on the current SF market + New Real Estate Market Report

^{In photo: Matt Salter, Arjun Divecha, Bob Gray and Riaz Taplin}

As you know, the financial markets have been undergoing a significant period of volatility driven by recent inflation and interest rate hikes.  At the same time, we have been witnessing a divergence between the public and private valuations of real estate and other equities.  At a recent event hosted by Riaz Capital ,  a panel of experts shared their views on the current market environment, both public and private, and how they are navigating these recent challenge. Here is my takeaway: 

Very interesting evening with Riaz Capital hosting a panel regarding the state of the markets. Arjun and Bob (Arjun Divecha; Head of the Emerging Markets Equity Team at GMO and Bob Gray, Managing Director at Rockwood Capital) are two very smart individuals who have been thru many cycles and super insightful to hear their take on what is happening locally and globally."

On the global level the area of opportunity in equity markets at this time are the emerging markets. In conjunction, manufactures are de-coupling with China and certain countries are positioned well to take advantage of this including: Vietnam, Thailand and Taiwan. Arjun loves these uncertain times because this is the time to take advantage of change. You just need to know where the change is going to benefit a country or region. Bob is deeply knowledgeable in all things real estate and he believes we are in desperate need of political and policy changes. Our local wounds are self inflicted and can be healed with thoughtful policy. Office space is in trouble and absorption rates could take 10+ years. The fact remains, one cannot over build workforce housing. We have jobs and we need to fill them. Provide hosing allow for immigration and let’s get to work. Americas workforce is aging and we are not having enough children. Let’s increase our labor market by allowing immigration and take advantage of our amazing economic abilities to create and provide the services needed. My takeaway is opportunities are available we just have to be bold enough to commit to believe in each other and stop the divisive thinking.

Together we are strong and divided we fall!

About the Speakers

Arjun Divecha is a highly respected investment professional with over 30 years of experience investing in Emerging Markets. He currently serves as the Head of the Emerging Markets Equity Team at GMO, a global investment management firm with over $140 billion in assets under management. Arjun joined GMO in 1993 and has played a leading role  building the firm's emerging markets strategy and investments. In addition to his Portfolio Manager role at GMO, Arjun also served as the firm’s Chairman from 2003 to 2017. During his tenure, he oversaw the development of the firm's investment strategies and helped guide its growth into a leading global investment management firm.

Bob Gray is a seasoned real estate professional with over 30 years of experience. He currently serves as a Managing Director at Rockwood Capital, a real estate investment firm with over $11 billion in assets under management. Throughout his career, Bob has been involved in the acquisition, development, and management of a diverse range of real estate assets, including office buildings, retail centers, and multi-family residential properties. Prior to joining Rockwood Capital, Bob held senior positions at several prominent real estate firms, including The Blackstone Group and Hines Interests.

San Francisco is searching for a direction -  June 4, 2023

What does the future hold for San Francisco?

I suppose this comes down to the various market areas. The future of the downtown/financial district is very different from Pacific and Presidio Heights. What to do with the high office space vacancies? What will happen to the commercial loans on these office buildings when the time comes to deal with the loan? Who will end up owning these buildings? Will the bank? Will private equity swoop them up? The answer is probably both. The absorption rate of the 20 million or so square feet of empty office space could take a decade or two. That is a long time and what do we do in the meantime? I suppose this comes down to the various market areas. The future of the downtown/financial district is very different from Pacific and Presidio Heights. What to do with the high office space vacancies? What will happen to the commercial loans on these office buildings when the time comes to deal with the loan? Who will end up owning these buildings? Will the bank? Will private equity swoop them up? The answer is probably both. The absorption rate of the 20 million or so square feet of empty office space could take a decade or two. That is a long time and what do we do in the meantime? I suppose this comes down to the various market areas. The future of the downtown/financial district is very different from Pacific and Presidio Heights. What to do with the high office space vacancies? What will happen to the commercial loans on these office buildings when the time comes to deal with the loan? Who will end up owning these buildings? Will the bank? Will private equity swoop them up? The answer is probably both. The absorption rate of the 20 million or so square feet of empty office space could take a decade or two. That is a long time and what do we do in the meantime?

So many questions. I believe San Francisco will find a way to reinvent itself. There is an incredible amount of intellectual capital residing here coupled with renowned universities as well. Some of us are even born here who are hardened by all the past ups and downs. There is a resiliency here which will gain momentum. The politics have to change to change the policy and that will take years. As a starting point, we simply cannot build enough affordable housing. There is an insatiable demand. If we can start to feed some of the demand, we can get back to the basics of building a culture of hard work and good ideas. Cost of capital is expensive, cost of labor is expensive so this is where good governance can help. We have the jobs so let’s house the workers so the job gets done and the discretionary income gets spent. Capitalism can come in many forms and it is time for a pivot. A pivot towards building a better tomorrow by building affordable housing. This is not the panacea but a starting point since San Francisco is searching for a direction.