Twitter owner Elon Musk’s newly-earned reputation as a troublesome tenant is starting to have real-world repercussions as his social media company’s problems spill over.
One landlord of his that sued to collect $136,250 in missed rent, Columbia Property Trust, has now defaulted on loans tied to its 650 California Street offices in San Francisco, where Musk leases the 30th floor of the Hartford Building located a mile from its headquarters.
The problems of Columbia, a real estate investment trust (REIT) owned by Allianz’s wealth management unit PIMCO, go beyond the money Musk owes, however.
Loans connected to another six office properties are also in default, although the Hartford Building has been appraised as the most valuable of the lot at nearly half a billion dollars.
“We have engaged with our lenders on a restructuring of our loan on seven properties within our larger national portfolio,” a spokesperson told Bloomberg, describing the current challenges facing the commercial real estate market as “unique and unprecedented”.
Twitter’s problems have now become its own as the social media platform struggles to meet anticipated cash commitments of $6.5 billion this year on expected revenue of just $3 billion, according to a forecast from Musk.
To manage his remaining reserves of liquidity and drum up precious cash, Musk has cancelled his janitorial contract, eliminated free staff lunches and auctioned off a trove of office swag including an oversized statue of the company’s bird-themed logo.
Jim Chanos is betting there will be more delinquent tenants like Musk
Musk, who saddled the company with $13 billion in debt as part of the October 2022 acquisition, has defended his controversial approach to restructuring Twitter balance sheet.
“This company is like, basically you’re in a plane that is headed towards the ground at high speed with the engines on fire and the controls don’t work,” he said during a Twitter Space in December.
Columbia REIT’s current $1.7 billion loan default, which affects well over a third of the 18 properties in its portfolio, is indicative of broader stress in the commercial real estate market ever since the COVID outbreak.
Staff simply are refusing to return to the office—even Musk claimed in November average occupancy at his Twitter headquarters didn’t even hit the 10% threshold: “There are more people preparing breakfast than eating breakfast.”
According to a report released Wednesday by Cushman & Wakefield, unused office space could hit 1 billion square feet by 2030, with nationwide vacancy rates rising by half over the 12% pre-pandemic level.
The industry’s poor outlook has resulted in shares of commercial REITs like Vornado Realty, Boston Property and SL Green Realty all falling anywhere from 40% to over 50% since last February, dramatically underperforming a 13% drop in the Dow Jones U.S. Select REIT Index.
This blood in the water has attracted short-selling legend Jim Chanos, who has opened up a bearish position against SL Green, New York City’s largest office rent collector, waging other delinquent tenants like Musk will refuse to pay their bills as well.
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