Landlords are trying not to rent to startups in San Francisco
1–10 of 308 posts
Re: Landlords are trying not to rent to startups in San Francisco
#2Obvious arbitrage possibility is obvious, and being exploited by new companies (WeWork for $10b valuation) themselves -- if you're better at evaluating startups than big dumb landlords, you can profit here. And there isn't a shortage of capital to play this game.
Re: Landlords are trying not to rent to startups in San Francisco
#3This is a great analysis and the argument makes perfect sense in every respect. The only thing I find dubious is the idea that the bust is 2-4 years out. I think if you polled most SF commercial landlords, they would tell you that they expect most of their startup tenants to start having difficulty paying the rent in no more than 18 months. It would be interesting to see some actual data on this. After all, there's not much benefit to demanding 5-year leases if you think that (a) prices are going to keep going up for 3 or 4 more years, and (b) your tenants are mostly going to be solvent for at least that long. If the landlords really believed the bust were 3 or 4 years out, given the sub-sub-sublease problem, they'd take startups on 1-year terms at a MUCH higher rate than established tenants who could negotiate modest discounts on longer-term leases. The evidence presented suggests rather strongly that most landlords don't expect these startups to be in business in 2 years, and I agree.
Re: Landlords are trying not to rent to startups in San Francisco
#4This is a great analysis and the argument makes perfect sense in every respect. The only thing I find dubious is the idea that the bust is 2-4 years out. I think if you polled most SF commercial landlords, they would tell you that they expect most of their startup tenants to start having difficulty paying the rent in no more than 18 months. It would be interesting to see some actual data on this. After all, there's n…
I think that horizon was meant to be in general, not on a per-startup basis. If any given start up fails in 12 months (expected), the space can be sub-leased to someone else - but they expect this scenario to only be the case for another few years.
Re: Landlords are trying not to rent to startups in San Francisco
#5Wow. I remember this is exactly what happened in 2001 and 2007. Maybe things are different this time.
Re: Landlords are trying not to rent to startups in San Francisco
#6Obvious arbitrage possibility is obvious, and being exploited by new companies (WeWork for $10b valuation) themselves -- if you're better at evaluating startups than big dumb landlords, you can profit here. And there isn't a shortage of capital to play this game.
If you're skilled at evaluating startups and have access to capital, owning real estate is a waste of time. This isn't an arbitrage opportunity. At best it's just borrowing short to lend long: the liabilities of the spot lease firms are in long-term leases and debt owed against owned real estate; the assets are short-term and demand leases on that property. This is no different from what gets overextended banks in big trouble when a bust occurs. In fact, we can even go a little farther: the banks that think they're the best at managing subprime credit risk (i.e., have the most underwriting skill) tend to take the biggest hit, because that skill is almost never real.
Re: Landlords are trying not to rent to startups in San Francisco
#7Or, consider starting a company outside of San Francisco. Not just outside of SoMA, actually outside of San Francisco. (I know, I know, blasphemy.)
Eventually the price of real estate and labor will be so high that the relative disadvantages of other locations will not matter.
Re: Landlords are trying not to rent to startups in San Francisco
#8This is a great analysis and the argument makes perfect sense in every respect. The only thing I find dubious is the idea that the bust is 2-4 years out. I think if you polled most SF commercial landlords, they would tell you that they expect most of their startup tenants to start having difficulty paying the rent in no more than 18 months. It would be interesting to see some actual data on this. After all, there's n…
I think that horizon was meant to be in general, not on a per-startup basis. If any given start up fails in 12 months (expected), the space can be sub-leased to someone else - but they expect this scenario to only be the case for another few years.
Yeah but if they're really remembering 2000, they know that's not so. There's always going to be some nonzero attrition rate among startups, but once a bust is under way the door slams shut on all of them at once. I'm saying I think (and think that landlords also think) that the door is going to slam shut in 12-18 months (maybe even less), not 36 or 48.
Re: Landlords are trying not to rent to startups in San Francisco
#9Wow. I remember this is exactly what happened in 2001 and 2007. Maybe things are different this time.
Large landlords with experience are probably a better group to bet on (in terms of understanding long term economic trends) than startups.
Just like the bond market is a better indicator of economic growth than the stock market. More money, more professionals, longer memories, not as much optimism.
Edit: future economic growth expectations, rather.
Re: Landlords are trying not to rent to startups in San Francisco
#10This is a great analysis and the argument makes perfect sense in every respect. The only thing I find dubious is the idea that the bust is 2-4 years out. I think if you polled most SF commercial landlords, they would tell you that they expect most of their startup tenants to start having difficulty paying the rent in no more than 18 months. It would be interesting to see some actual data on this. After all, there's n…
Agreed, many landlords seem to feel like the trouble is a mere few months away, although often any attempt at getting them to discuss how they arrived at that conclusion gets something like "I just know it."
So one wonders about the whole "wisdom of the crowds" or "herd" in this case, and whether or not they can sense something that isn't showing up in other indicators. I've been looking but other than the extensively covered late stage valuation madness I've not found good correlation for this feeling.