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Silicon Valley companies are dumping office space at an accelerating pace, as tech leaders such as Google and Facebook parent Meta Platforms close locations and reassess their commitments to the workplace, the Wall Street Journal reported. Office-vacancy rates in Silicon Valley, which includes the Northern California communities of San Jose, Palo Alto and Sunnyvale, were up to 17% in June from 11% in 2019, according to data firm CoStar Group. In some spots, such as Menlo Park and Mountain View, the rate surpassed 20% this spring, CoStar said. The level of surplus office space remains below what is available just north in San Francisco, where the vacancy rate has more than tripled from 2019 to more than 25%. But some analysts and investors expect Silicon Valley will narrow the gap because tech companies are going through layoffs and are shedding unwanted floors.

The construction manager for the beleaguered American Dream mall and entertainment complex in New Jersey’s Meadowlands is suing JPMorgan Chase & Co. to recover more than $30 million of unpaid work and accrued interest for the project, Bloomberg News reported. Denver-based PCL Construction Services alleges JPMorgan, which arranged a construction loan and serves as administrative agent for American Dream’s developer, Ameream, is obligated to pay the bill if the developer doesn’t, according to the lawsuit filed June 15 in a New York federal court. “Ameream is now in financial distress,” PCL Construction Services said in the lawsuit. “Agent now has a contractual obligation to advance the amounts due and owing that Ameream failed to pay as they became due. Yet, agent has failed to do so.” Triple Five Group created Ameream to develop the megamall. Gurpreet Kaur, a JPMorgan spokesperson, declined to comment. Jessica Griffin, a spokesperson for American Dream, didn’t provide immediate comment. Lenders led by JPMorgan provided $1.7 billion in construction borrowing. In connection with the loan, JPMorgan, as agent, agreed to backstop Ameream if the developer couldn’t pay PCL, just as the bank “had the power to seek recovery from Ameream for every dollar advanced to PCL,” according to the lawsuit. In November, the megamall received a four-year extension on the loan from the JPMorgan-led group.

Risks in commercial real estate (CRE), particularly for the office sector, have been exacerbated by rising interest rates, people choosing to work from home, and banking stress, according to a analysis yesterday by Moody's Investor Service, Reuters reported. Office remains "particularly exposed" as a large share of employees continue to work from home, creating default risk for office real estate loans, which represent $736 billion, or 16.7% of CRE debt outstanding, the Moody's report added. Some strained commercial properties underlying commercial mortgage-backed securities (CMBS) — which represent 16% of CRE debt outstanding — are also likely to have trouble with refinancing. Moody's analysts expect an economic slowdown to dent revenue growth that had been driven by a post-pandemic demand recovery across multi-family, hospitality, retail and industrial sectors. Analysts expect CRE values in all sectors to soften as economic activity decelerates.

Comerica Inc. said on Tuesday it was planning to exit the mortgage banker finance business by the end of the year, in a bid to improve the U.S. regional lender's loan-to-deposit ratio and capital efficiency, Reuters reported. The bank, in a presentation at a Morgan Stanley conference, said that the exit will help to blunt the effects of seasonality and cyclicality on its loan portfolio. Shares of the bank rose 5.5% to $43.30 in early trading and were down nearly 39% this year, in the aftermath of the biggest crisis to hit the sector since 2008. Since the collapse of three banks earlier this year following a deposit run, regional lenders have been trying to shore up liquidity to boost investor confidence by shedding loan portfolios in a high-interest-rate environment. Comerica's exit is expected to improve its loan-to-deposit ratio by about 150 basis points at year-end. Earlier this month, Canada's Fairfax Financial Partners agreed to buy a huge chunk of California-based regional lender PacWest Bancorp's real estate loans from property investment firm Kennedy-Wilson for $2.1 billion. In the first quarter, Comerica's average deposits fell about 5% to $67.8 billion from the previous quarter, as spooked customers moved their money out of smaller banks and into the perceived safety of bigger 'too-big-to-fail' Wall Street institutions.

San Francisco’s once thriving hotel market is suffering its worst stretch in at least 15 years, pummeled by the same forces that have emptied out the city’s office towers and closed many retail stores, the Wall Street Journal reported. Hotel owners in New York and Los Angeles are filling nearly as many rooms this year as they did in 2019, according to hotel-data firm STR. Their revenue per available room exceeds what it was before the pandemic. But in San Francisco, hotels are still struggling badly in both occupancy and room rates compared with before the pandemic. Revenue per available room was nearly 23% lower in April compared with the same month in 2019. The city’s lodging business has been squeezed by crime and other quality-of-life issues that have kept many convention bookers away. Tech companies’ embrace of remote work also undercuts business travel to the city and hotel activity. Now, a growing number of San Francisco hoteliers are signaling they may be ready to give up. In recent months, the owner of the city’s Huntington Hotel sold the property after facing foreclosure and the Yotel San Francisco hotel sold in a foreclosure auction. Club Quarters San Francisco, which has been in default on its loan since 2020, may also be headed to foreclosure, according to data company Trepp. Other lodging properties in the city are also vulnerable. More than 20 additional San Francisco hotels are facing loans due in the next two years, according to data company CoStar.

Anyone in Florida who has opened a home insurance bill in the last few years knows premiums have been skyrocketing. New estimates from a data analysis company shows they’ve actually been rising faster than in any other state — a lot faster, the Miami Herald reported. The numbers show just how massive the impact has been on the wallets of Florida consumers, with home insurance costs up about 57% since 2015, according to LexisNexis Risk Solutions. That’s nearly triple the national average (21%) and far outpaces Nebraska, the state with the second-biggest average home insurance hike (43%). Climate change may take some of the blame: Warming oceans and an altered atmosphere are making hurricanes more likely to rapidly intensify and may make stronger storms more frequent. A recent run of hard-hitting hurricanes has pushed several Florida insurers into insolvency. But there are also other, more mundane causes, according to insurance experts. Inflation has driven up the cost of materials and labor to repair or rebuild a house. Rising interest rates have raised the cost of borrowing for insurance and reinsurance companies. Developers keep building pricey homes in vulnerable floodplains and along eroding coasts. And new residents keep flooding to them, concentrating the state’s insurance risk.

More than three dozen Buffalo (N.Y.) Diocese properties could soon be appraised for current values that ultimately may factor heavily into a settlement with sexual abuse claimants in the diocese’s chapter 11 bankruptcy court, the Buffalo News reported. Lawyers for the diocese are asking a federal judge to approve a request to hire KLW Appraisal Group to come up with valuations for 37 properties spread across six counties. The properties vary from 15 acres of vacant land in the Town of Hamburg near the Erie County Fairgrounds to a historically significant four-story office building in the heart of Buffalo’s medical corridor. They also include six school buildings, two retirement homes for priests, St. Joseph Cathedral, and the former Christ the King Seminary in Aurora. They were estimated collectively to be worth $16 million in 2020 when the diocese first sought chapter 11 bankruptcy protection in response to more than 200 Child Victims Act lawsuits alleging clergy and other diocese employees sexually abused children decades ago, according to a disclosure statement at the time. But the court papers also indicated that most of the properties had not undergone a recent appraisal.

Office real estate investments trusts are trading at their lowest level since 2009 as the trend toward remote work leaves desks empty and economic pressures tighten corporate budgets, Bloomberg reported. The S&P Composite 1500 Office REITs index is down 27% in 2023, plunging to its worst reading since July 22, 2009. Office landlords comprise just 6% of the REIT sector, which explains why the broader S&P Composite Equity REITs index is down just 5.2% year-to-date and the S&P 500 Real Estate sector has dropped 4.5%. Offices are what’s weighing on the group. “There’s two ways to lose money: You can own a boat, or you can own an office building,” Piper Sandler analyst Alexander Goldfarb said. “At least with the boat you can take your friends out on a sunset cruise.” While the stress on the office sector may not be new, the shift to working from home has exacerbated the problem. However, much of the damage could already be priced into the stocks after this latest selloff, analysts said. In addition, fears about commercial real estate have added to the woes of regional bank stocks that typically fund local projects like strip malls and small office buildings. The sector has been pressured since the collapse of Silicon Valley Bank in March sparked industry-wide turmoil. Now some investors fear that its exposure to office weakness could be the next shoe to drop.

The average long-term U.S. mortgage rate rose this week to its highest level since mid March, driving up borrowing costs for prospective homebuyers facing a housing market that’s constrained by a dearth of homes for sale, the Associated Press reported. Mortgage-buyer Freddie Mac said yesterday that the average rate on the benchmark 30-year home loan rose to 6.57% from 6.39% last week. The average rate a year ago was 5.10%. High rates can add hundreds of dollars a month in costs for homebuyers, limiting how much buyers can afford in a market that remains unaffordable to many Americans after years of soaring home prices and limited housing inventory. The median monthly payment listed on applications for home purchase loans in April rose to $2,112, up nearly 12% from a year ago and a 0.9% increase from March, the Mortgage Bankers Association said Thursday. The average rate on a 30-year home loan has risen two weeks in a row, echoing moves in the 10-year Treasury yield, which lenders use as a guide to pricing loans. The 10-year Treasury yield has been mostly rising of late, climbing to 3.79% in afternoon trading Thursday. Two weeks ago, it was at 3.39%. “The U.S. economy is showing continued resilience which, combined with debt-ceiling concerns, led to higher mortgage rates this week,” said Sam Khater, Freddie Mac’s chief economist. Jitters over the possibility that the government ends up defaulting on its debt could cause creditors to ask for higher interest rates on U.S. Treasury bonds, which could lead to a “significant increase” in borrowing costs, including mortgages, said Jiayi Xu, an economist at Realtor.com.