In the wake of the COVID-19 pandemic and the aftermath of the lockdowns that even today are encouraging government workers in particular to stay home and work (if at all) remotely, the value of downtown office space in many U.S. cities has been a question in the minds of the U.S. and global investment communities.
The result – for the ready large-scale investor – is the best buying opportunity in a very long time.
In San Francisco, for example, a partially leased commodity downtown office building that two years ago would sell for $700 per square foot is today selling for $150-200 per square foot.
This unprecedented value change has created a market in which fully leased urban properties can be purchased at 40 percent less today than two years ago, even though the risk profile has not changed. What this means is that yields on these investments may be 40 percent higher.
One California-based, nation spanning real estate firm has developed a plan to take advantage of this golden opportunity by raising an investment portfolio that bridges digital security with hard assets in a traditional way.
Steelwave, which has built its reputation by creating unique, worker-attractive facilities for tech companies, has created a Bermuda-based fund with the goal of attracting sizable sums ($50 million for starters) from foreign investors for virtually risk-off profit making.
CEO and Chairman Barry DiRaimondo explains that the U.S. is at least five years behind the curve in creating a legal playing field for digital security investments, despite recent embarrassing – and costly – results of the lack of a regulatory framework that would benefit investors and anyone in the digital ecosystem.
One reason, he speculates, is that there are multiple industries that are heavily entrenched in the existing system – securities lawyers, custodians, etc. This massive infrastructure, which “moves like an aircraft carrier,” will likely get bypassed once digital options become readily available.
And none of these people want to get priced out of their cushy jobs, so they have avoided deciding if digital currencies are securities or commodities.
DiRaimondo’s goal is a $500 million fund of which a maximum $25 million may be listed on an exchange to enable smaller institutional investors (at the $3 million level) to buy tokens.
All other investors, though, will have limited partner interests that they can later convert to tokens if they choose. Time, of course, is of the essence – another reason for not waiting until the U.S. finally gets around to creating a proper regulatory framework.
Meanwhile, creating a fund in Bermuda requires a myriad of private placement memoranda and multiple limited liability corporations. Depending on the investor’s home base, the process also includes interesting tax consequences that must be spelled out in advance.
Once the legal maneuvering is completed, however, the investing can start happening in earnest.
As DiRaimondo sees it, cities are not going to recover until government agencies – at the city, county, state, and federal levels – go back to work in their downtown offices (and thus create the foot traffic that helps bring order). The Catch-22 is that because of the abandonment by the government (and much of the tech industry as well), downtowns in many cities are deemed unsafe even for walking around, and many people no longer want to work or live there.
One unfortunate result of the widespread work-from-home revolution is the lack of face-to-face encounters that in normal times enable permitting and other approvals to be done promptly. DiRaimondo says that on the real estate side it is taking up to five times longer to get approvals – and that costs money, stifles opportunity, and frustrates businesses.
Still, DiRaimondo is hopeful that within one or two election cycles people will begin returning to downtowns.
I agree with him - American cities ought not be hollowed out into perpetuity.
Steelwave believes that its history of creating modern-style office spaces that no longer resemble the sterile environments of past decades is part of the solution.
To attract employees back to the “hive” today requires creating a work environment with all the amenities at hand – more like a high-end hotel.
As DiRaimondo puts it, the best workplaces are those where people feel comfortable and creative – in buildings that have “good bones” – for example, high ceilings and open spaces that can be transformed into livable environments.
“Our users,” he says, “view real estate as a strategic asset, not a cost center.”
Far too many are still mired in the doomsday post-pandemic mentality that fears the future and seeks to avoid activities that might bring on societal collapse.
Re-humanizing workspaces may play a key role in ending the ongoing malaise that has particularly plagued governments – as the rest of America has long since gone back to work.
And, as DiRaimondo observes, that includes catching up with the rest of the world in creating a digital regulatory framework and revitalizing America’s downtowns.
