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Report: Investors Turning Away from Urban Core Bonds
At one time, central business districts and downtown areas were considered “a mother lode for American cities over the years,” according to a recent Wall Street Journal article. The businesses operating in these submarkets generated billions in tax revenue, meaning city bondholders could count on decent returns.
But that same Wall Street Journal article now points out that Wall Street is no longer quite as enamored with America’s downtown submarkets. REITs focused on CBD property are trading at less than half their pre-pandemic levels. Meanwhile, bondholders want extra interest to hold office-building debt.
Though back-to-office mandates are on the rise, the WSJ article puts the blame on cooling investor sentiment on the continued work-from-home trends. It’s no secret that office buildings continue taking occupancy hits. This has led subsidiaries of Pacific Investment Management and Brookfield Asset Management to recently default on more than $2 billion In CMBS on office towers in New York Los Angeles and San Francisco.
Additionally, federal transit data reports public-transportation ridership at less than 70% of pre-COVID levels in major metros.
But not all downtowns are showing problems. Asset Preservation Advisors’ analysts told the WSJ that they’re “confident of certain tax-backed bonds sold by New York City and Boston.” At the same time, the analysts are wary about debt issued by other Northern urban centers and larger California cities.
“The suburbs are going to be one of the big winners in this, and the potential losers could be the large cities that have depended on people coming back and forth to work,” Ken Woods, Asset Preservation’s founder and chairman of the firm was quoted as saying. Meanwhile, Asset Preservation Advisors stopped buying the New York Metropolitan Transportation Authority’s fare-backed debt, unless it matures soon.
On the other hand, investors are finding opportunities in suburban bonds issued from lower-tax Southern and Western states; states that are attracting companies and workers from the northern big-city centers, the article said.
- ◦Sale/Acquisition
- ◦Financing
- ◦Economy
