Authored by Mark Glennon via Wirepoints.org,
Reversal of the work-from-home trend arguably provides the best hope for breaking what’s now often called the “doom loop” for downtown areas like Chicago’s.
Unfortunately, the numbers aren’t cooperating.
Actual occupancy plummeted when the pandemic started then gradually began to recover in spring of 2000. But that recovery stalled around the first of this year. Office usage has flatlined since then at about 50% of pre-pandemic levels in Chicago. Same for other big cities on average.
The chart here shows that trend. It’s from Kastle Systems, a leading provider of security systems, which compiles the data weekly, showing true occupancy as a percentage of pre-pandemic true occupancy. It’s the most commonly used measure of actual office utilization today, using security swipe cards for entry and exit.
“Doom loop” is now the popular term in commercial property circles to describe what many experts fear ensues. It means the downward spiral created as big office buildings lose assessed value and pay less property tax thereby reducing the quality of government services and pushing the tax load to homeowners or other taxpayers.
As the publication Curbed describe it, “Workers don’t return, offices remain empty, restaurants shutter, transit agencies go bankrupt, tax bases plummet, public services disappear.” That’s obviously disastrous for all city residents, not just commercial property owners, as explained here last month with help for Prof. Joseph Pagliari at the University of Chicago.
The “doom loop” term has been popularized on this matter after its use in a study written last fall by business professors called “Work From Home and the Office Real Estate Apocalypse,” about the dire consequences of remote work for big cities.
San Francisco provides the most frightening warning. What was America’s prettiest major city is in free fall. Among many articles on that is a detailed one from Britain’s Financial Times last week headlined, “What if San Francisco never pulls out of its doom loop?” From that column:
Online discourse about San Francisco’s “doom loop”, a downward economic and social spiral that becomes irreversible, feels less like hyperbole by the day. Even for a city that has always managed to rebuild after flattening financial and geological shocks, San Francisco — emptier, deadlier, more politically dysfunctional — seems closer to the brink than ever.
To make its point, the Financial Times used AI tools to create images showing the city in a post-apocalyptic state, like here for its cover.
We chose not to do that for images of Chicago, hoping you’ll get the point anyway. True office occupancy in San Francisco is about 44% of pre-pandemic levels – not terribly much worse than Chicago’s 50%.
Reported after we wrote on this topic last month, the vacancy rate as traditionally measured hit a record high of 22.4% for Chicago’s central business district office space during the first quarter. That traditional measure looks at space under lease.
Also since we last wrote on this matter, several more potential commercial property casualties have been reported in Chicago. The lender holding a $230 million mortgage backed by the 49-story office tower at 161 N. Clark St. plans to hire a broker to sell the loan, Crain’s wrote on Friday, according to a source familiar with the matter. “But industry experts estimate the building today is worth less than the $230 million loan that the Korea Post venture took out against it in late 2018,” Crain’s wrote. “That valuation would imply an astronomical loss of equity for the owners, which paid about $331 million for the tower in 2013, according to Cook County property records.”
Also reported by Crain’s last week, “the historic Jewelers Building on Wacker Drive for more than 40 years is looking for a buyer as it stares down a deadline to pay off its mortgage. It’s playing up the landmark as a prime candidate to be turned into a residential tower.”
TheRealDeal also reported last week on the likely foreclosure on a major, prime retail property at the southwest corner of Michigan Avenue and Wacker Drive.
Crime is the other primary contributor to the doom loop in Chicago, San Francisco and many other cities. Crime is a solvable problem, raising the hope that at least that factor could be eliminated to help break the doom loop.
But in Chicago, is crime reduction a genuine possibility? A criminal’s Dream Team is now in place: Cook County State’s Attorney Kim Fox, Illinois Attorney General Kwame Raoul, Chicago Mayor Brandon Johnson, Cook County Chief Judge Tim Evans and Cook County Board President Toni Preckwinkle. They are cheered on by a supermajority in the Illinois General Assembly and by Gov. JB Pritzker, who show no interest in overriding their lax, woke approach to law enforcement. Instead, they all support the highly controversial Safe-T Act, now being challenged in court, which we’ve often criticized here.
Mayor Johnson’s new administration has offered no crime reduction program other than higher taxes to fund social programs that he believes are the long-term solution to crime.
Nor is anything else on that table to break the other elements contributing to Chicago’s downward spiral.
Get used to hearing about “doom loop,” though you’ll never hear it said by Illinois’ political establishment.