In San Francisco, a 20-story office tower that sold for $146 million a decade ago was listed in December for just $80 million.
In Chicago, a 200,000-square-foot-office building in the city’s Clybourn Corridor that sold in 2004 for nearly $90 million was purchased last month for $20 million, a 78 percent markdown.
And in Washington, a 12-story building that mixes office and retail space three blocks from the White House that sold for $100 million in 2018 recently went for just $36 million.
Such steep discounts have become normal for office space across the United States as the pandemic trends of hybrid and remote work have persisted, hollowing out urban centers that were once bustling with workers. But the losses are hitting more than just commercial real estate investors. Cities are also starting to bear the brunt, as municipal budgets that rely on taxes associated with valuable commercial property are now facing shortfalls and contemplating cutbacks as lower assessments of property values reduce tax bills.
“They’re being sold at massive discounts,” Aaron Peskin, president of the San Francisco board of supervisors, said of office buildings in his city. “If you were the folks who bought at the top of the market, you’re taking a huge haircut.”
Mr. Peskin said that San Francisco’s $14 billion budget is facing the prospect of a $1 billion shortfall over the next few years, in part because of lost commercial real estate tax revenue.
“In the short term, it means less money in municipal coffers and a less robust downtown,” he said.
Since the pandemic, cities across the country have benefited from an economic rebound and an infusion of billions of dollars in federal relief money that was disbursed through the American Rescue Plan of 2021. That left municipalities so flush with cash that they were giving city workers raises, refurbishing local basketball and tennis courts and upgrading sewage systems.
But now budgets are starting to tighten.
A fiscal report published by the National League of Cities last year found that optimism among municipal finance officials has started to wane amid concerns of weaker sales and lower property taxes coinciding with the expiration of federal funds.
Cutbacks could lead to what Arpit Gupta, a professor at the New York University Stern School of Business, has described as an “urban doom loop” across the United States.
In a research paper that was updated late last year, Mr. Gupta and his colleagues estimated that the national office market lost $664.1 billion in value from 2019 to 2022. To fill the budget holes created by the lost tax revenue, they posited that cities could cut services or raise other kinds of taxes. But that would come with its own downsides, including prompting businesses and residents to leave, exacerbating the problem by further eroding the tax base.
Mr. Gupta compared the dynamic to the conundrum that rust belt cities experienced in the 1960s and ’70s when manufacturers shuttered and local governments struggled to balance their budgets.
“Some cities that tried to raise taxes and cut back on public services found that those responses accelerated the process of urban flight,” he said. “It sort of compounded itself.”
The stress bearing down on the commercial real estate sector has been evident since the pandemic accelerated the trend of remote work. That has been complicated by high interest rates, which have made refinancing expensive, and stress in the banking sector, which is holding about $3 trillion of outstanding commercial real estate debt.
The situation is reminiscent of the turmoil that the commercial real estate sector experienced during the 2008 financial crisis, when credit dried up. This time, however, the changes in how and where people work suggests that a deeper structural shift in the market could be setting in — at least until interest rates fall.
Glen Seidlitz, principal and founder of the Washington-based commercial real estate advisory firm Six23, said that many building owners and investors are trying to restructure their loans and in some cases looking for new capital. But for the most part, because of lower occupancies and higher borrowing costs, the sector is in decline.
“It feels like the lenders really recognize the fundamental problem, which is, if interest rates are going to stay higher, it means there’s less capital to buy real estate and if there are less buyers to buy real estate, obviously prices are going to reflect lower demand,” Mr. Seidlitz said. “And so until there is stability, there’s just this spiral that will occur as a function of it.”
Anxiety over commercial real estate ratcheted up last month when New York Community Bank disclosed unanticipated losses on real estate loans that were tied to office and apartment buildings, sending its stock plunging. At a congressional hearing in February, Treasury Secretary Janet L. Yellen acknowledged that the sector could pose financial risks and said that regulators were watching for signs of trouble.
The risks for municipalities depend on how reliant their tax bases are on revenue from commercial real estate.
A Moody’s Investors Service report last October said that the credit ratings of Atlanta and Boston were among the most vulnerable to swings in commercial real estate prices but that upheaval in the sector would be a threat to large cities for the next several years.
“The shift to more work away from the office, compounded by the preexisting trend of increased online purchasing, has peeled a substantial amount of spending away from business districts,” Moody’s analysts said in the report.
Thomas Brosy, a research associate at the Urban Institute’s Tax Policy Center, noted that declining valuations tend to be a “lagging indicator” as new leases fetch smaller rents and owners appeal tax assessments when other buildings sell for low prices. He suggested that within the next three years, cities will have to make hard choices about spending cuts and tax increases.
“It’s going to start to be painful,” he said.
Major metropolitan centers are already preparing for the worst.
San Francisco, which is experiencing a surge in tax assessment appeals for commercial buildings, has had to defer maintenance on city facilities to save money. Mr. Peskin, who is considering running for mayor of San Francisco, said that he had been pushing for policies that would encourage converting vacant downtown office space into apartment buildings.
New York City’s comptroller laid out a “doomsday” scenario last summer where the value of the city’s offices settled at 40 percent below their prepandemic peaks. This would translate to budget shortfalls of approximately $322 million in 2025 and $1.1 billion in 2027.
In Washington, where the office vacancy rate topped 20 percent at the end of 2023, the fiscal situation is also dire. Signs advertising leases are emblazoned on some of the capital’s prime office buildings, while downtown retail spaces sit empty.
The owner of the Washington Wizards and Washington Capitals has been angling to vacate the city’s Capital One Arena and move the teams to Virginia, potentially dealing another blow to a downtown already struggling with closures of restaurants and retail stores. The DowntownDC Business Improvement District business group estimates that the arena helps generate $341 million in annual spending.
The city’s chief financial officer, Glen Lee, projected last year that Washington would face a budget shortfall of $464 million from 2024 to 2026 and attributed much of that gap to declining commercial real estate tax revenue. In an update last month, Mr. Lee warned that the health of the sector was deteriorating more than previously expected and that shifts in demand for office space could have lasting consequences for Washington.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
In the quest to find cities where renters can enjoy the best of all worlds, a recent study analyzed 24 metrics across three key categories—Housing & Economy, Quality of Life, and Community. The study ranked the 100 largest cities in Canada to determine which ones offer the most to their renters.
Here are the top 10 cities that emerged as the best for renters in 2024:
St. John’s, NL
St. John’s, Newfoundland and Labrador, stand out as the top city for renters in Canada for 2024. Known for its vibrant cultural scene, stunning natural beauty, and welcoming community, St. John’s offers an exceptional quality of life. The city boasts affordable housing, a robust economy, and low unemployment rates, making it an attractive option for those seeking a balanced and enriching living experience. Its rich history, picturesque harbour, and dynamic arts scene further enhance its appeal, ensuring that renters can enjoy both comfort and excitement in this charming coastal city.
Sherbrooke, QC
Sherbrooke, Quebec, emerges as a leading city for renters in Canada for 2024, offering a blend of affordability and quality of life. Nestled in the heart of the Eastern Townships, Sherbrooke is known for its picturesque landscapes, vibrant cultural scene, and strong community spirit. The city provides affordable rental options, low living costs, and a thriving local economy, making it an ideal destination for those seeking both comfort and economic stability. With its rich history, numerous parks, and dynamic arts and education sectors, Sherbrooke presents an inviting environment for renters looking for a well-rounded lifestyle.
Québec City, QC
Québec City, the capital of Quebec, stands out as a premier destination for renters in Canada for 2024. Known for its rich history, stunning architecture, and vibrant cultural heritage, this city offers an exceptional quality of life. Renters benefit from affordable housing, excellent public services, and a robust economy. The city’s charming streets, historic sites, and diverse culinary scene provide a unique living experience. With top-notch education institutions, numerous parks, and a strong sense of community, Québec City is an ideal choice for those seeking a dynamic and fulfilling lifestyle.
Trois-Rivières, QC
Trois-Rivières, nestled between Montreal and Quebec City, emerges as a top choice for renters in Canada. This historic city, known for its picturesque riverside views and rich cultural scene, offers an appealing blend of affordability and quality of life. Renters in Trois-Rivières enjoy reasonable housing costs, a low unemployment rate, and a vibrant community atmosphere. The city’s well-preserved historic sites, bustling arts community, and excellent educational institutions make it an attractive destination for those seeking a balanced and enriching lifestyle.
Saguenay, QC
Saguenay, located in the stunning Saguenay–Lac-Saint-Jean region of Quebec, is a prime destination for renters seeking affordable living amidst breathtaking natural beauty. Known for its picturesque fjords and vibrant cultural scene, Saguenay offers residents a high quality of life with lower housing costs compared to major urban centers. The city boasts a strong sense of community, excellent recreational opportunities, and a growing economy. For those looking to combine affordability with a rich cultural and natural environment, Saguenay stands out as an ideal choice.
Granby, QC
Granby, nestled in the heart of Quebec’s Eastern Townships, offers renters a delightful blend of small-town charm and ample opportunities. Known for its beautiful parks, vibrant cultural scene, and family-friendly environment, Granby provides an exceptional quality of life. The city’s affordable housing market and strong sense of community make it an attractive option for those seeking a peaceful yet dynamic place to live. With its renowned zoo, bustling downtown, and numerous outdoor activities, Granby is a hidden gem that caters to a diverse range of lifestyles.
Fredericton, NB
Fredericton, the capital city of New Brunswick, offers renters a harmonious blend of historical charm and modern amenities. Known for its vibrant arts scene, beautiful riverfront, and welcoming community, Fredericton provides an excellent quality of life. The city boasts affordable housing options, scenic parks, and a strong educational presence with institutions like the University of New Brunswick. Its rich cultural heritage, coupled with a thriving local economy, makes Fredericton an attractive destination for those seeking a balanced and fulfilling lifestyle.
Saint John, NB
Saint John, New Brunswick’s largest city, is a coastal gem known for its stunning waterfront and rich heritage. Nestled on the Bay of Fundy, it offers renters an affordable cost of living with a unique blend of historic architecture and modern conveniences. The city’s vibrant uptown area is bustling with shops, restaurants, and cultural attractions, while its scenic parks and outdoor spaces provide ample opportunities for recreation. Saint John’s strong sense of community and economic growth make it an inviting place for those looking to enjoy both urban and natural beauty.
Saint-Hyacinthe, QC
Saint-Hyacinthe, located in the Montérégie region of Quebec, is a vibrant city known for its strong agricultural roots and innovative spirit. Often referred to as the “Agricultural Technopolis,” it is home to numerous research centers and educational institutions. Renters in Saint-Hyacinthe benefit from a high quality of life with access to excellent local amenities, including parks, cultural events, and a thriving local food scene. The city’s affordable housing and close-knit community atmosphere make it an attractive option for those seeking a balanced and enriching lifestyle.
Lévis, QC
Lévis, located on the southern shore of the St. Lawrence River across from Quebec City, offers a unique blend of historical charm and modern conveniences. Known for its picturesque views and well-preserved heritage sites, Lévis is a city where history meets contemporary living. Residents enjoy a high quality of life with excellent public services, green spaces, and cultural activities. The city’s affordable housing options and strong sense of community make it a desirable place for renters looking for both tranquility and easy access to urban amenities.
This category looked at factors such as average rent, housing costs, rental availability, and unemployment rates. Québec stood out with 10 cities ranking at the top, demonstrating strong economic stability and affordable housing options, which are critical for renters looking for cost-effective living conditions.
Québec again led the pack in this category, with five cities in the top 10. Ontario followed closely with three cities. British Columbia excelled in walkability, with four cities achieving the highest walk scores, while Caledon topped the list for its extensive green spaces. These factors contribute significantly to the overall quality of life, making these cities attractive for renters.
Victoria, BC, emerged as the leader in this category due to its rich array of restaurants, museums, and educational institutions, offering a vibrant community life. St. John’s, NL, and Vancouver, BC, also ranked highly. Québec City, QC, and Lévis, QC, scored the highest in life satisfaction, reflecting a strong sense of community and well-being. Additionally, Saskatoon, SK, and Oshawa, ON, were noted for having residents with lower stress levels.
For a comprehensive view of the rankings and detailed interactive visuals, you can visit the full study by Point2Homes.
While no city can provide a perfect living experience for every renter, the cities highlighted in this study come remarkably close by excelling in key areas such as housing affordability, quality of life, and community engagement. These findings offer valuable insights for renters seeking the best places to live in Canada in 2024.
The provincial regulator responsible for policing B.C.’s real estate industry has ordered a former Realtor to pay $130,000 and cancelled her licence after determining that she committed a variety of professional misconduct.
Rashin Rohani surrendered her licence in December 2023, but the BC Financial Services Authority’s chief hearing officer Andrew Pendray determined that it should nevertheless be cancelled as a signal to other licensees that “repetitive participation in deceptive schemes” will result in “significant” punishment.
He also ordered her to pay a $40,000 administrative penalty and $90,000 in enforcement expenses. Pendray explained his rationale for the penalties in a sanctions decision issued on May 17. The decision was published on the BCFSA website Wednesday.
Rohani’s misconduct occurred over a period of several years, and came in two distinct flavours, according to the decision.
Pendray found she had submitted mortgage applications for five different properties that she either owned or was purchasing, providing falsified income information on each one.
Each of these applications was submitted using a person referred to in the decision as “Individual 1” as a mortgage broker. Individual 1 was not a registered mortgage broker and – by the later applications – Rohani either knew or ought to have known this was the case, according to the decision.
All of that constituted “conduct unbecoming” under B.C.’s Real Estate Services Act, Pendray concluded.
Separately, Rohani also referred six clients to Individual 1 when she knew or ought to have known he wasn’t a registered mortgage broker, and she received or anticipated receiving a referral fee from Individual 1 for doing so, according to the decision. Rohani did not disclose this financial interest in the referrals to her clients.
Pendray found all of that to constitute professional misconduct under the act.
‘Deceptive’ scheme
The penalties the chief hearing officer chose to impose for this behaviour were less severe than those sought by the BCFSA in the case, but more significant than those Rohani argued she should face.
Rohani submitted that the appropriate penalty for her conduct would be a six-month licence suspension or a $15,000 discipline penalty, plus $20,000 in enforcement expenses.
For its part, the BCFSA asked Pendray to cancel Rohani’s licence and impose a $100,000 discipline penalty plus more than $116,000 in enforcement expenses.
Pendray’s ultimate decision to cancel the licence and impose penalties and expenses totalling $130,000 reflected his assessment of the severity of Rohani’s misconduct.
Unlike other cases referenced by the parties in their submissions, Rohani’s misconduct was not limited to a single transaction involving falsified documents or a series of such transactions during a brief period of time, according to the decision.
“Rather, in this case Ms. Rohani repetitively, over the course of a number of years, elected to personally participate in a deceptive mortgage application scheme for her own benefit, and subsequently, arranged for her clients to participate in the same deceptive mortgage application scheme,” the decision reads.
Pendray further noted that, although Rohani had been licensed for “a significant period of time,” she had only completed a small handful of transactions, according to records from her brokerage.
There were just six transactions on which her brokerage recorded earnings for her between December 2015 and February 2020, according to the decision. Of those six, four were transactions that were found to have involved misconduct or conduct unbecoming.
“In sum, Ms. Rohani’s minimal participation in the real estate industry as a licensee has, for the majority of that minimal participation, involved her engaging in conduct unbecoming involving deceptive practices and professional misconduct,” the decision reads.
According to the decision, Rohani must pay the $40,000 discipline penalty within 90 days of the date it was issued.
