Posted on 03/18/2024 9:50:24 AM PDT by SeekAndFind
The CRE implosion is picking up steam.
Check out the grim stats on Pittsburgh.
Unions are also a problem in Pittsburgh as they are in Illinois and California.
The Post Gazette reports nearly half of Downtown Pittsburgh office space could be empty in 4 years.
Confidential real estate information obtained by the Pittsburgh Post-Gazette estimates that 17 buildings are in “significant distress” and another nine are in “pending distress,” meaning they are either approaching foreclosure or at risk of foreclosure. Those properties represent 63% of the Downtown office stock and account for $30.5 million in real estate taxes, according to the data.
It also calculates the current office vacancy rate at 27% when subleases are factored in — one of the highest in the country.
And with an additional three million square feet of unoccupied leased space becoming available over the next five years, the vacancy rate could soar to 46% by 2028, based on the data.
Property assessments on 10 buildings, including U.S. Steel Tower, PPG Place, and the Tower at PNC Plaza, have been slashed by $364.4 million for the 2023 tax year, as high vacancies drive down their income.
Another factor has been the steep drop — to 63.5% from 87.5% — in the common level ratio, the number used to compute taxable value in county assessment appeal hearings.
The assessment cuts have the potential to cost the city, the county, and the Pittsburgh schools nearly $8.4 million in tax refunds for that year alone. Downtown represents nearly 25% of the city’s overall tax base.
In response Pittsburgh City Councilman Bobby Wilson wants to remove a $250,000 limit on the amount of tax relief available to a building owner or developer as long as a project creates at least 50 full-time equivalent jobs.
It’s unclear if the proposal will be enough. Annual interest costs to borrow $1 million have soared from $32,500 at the start of the pandemic in 2020 to $85,000 on March 1. Local construction costs have increased by about 30% since 2019.
But the city is doomed if it does nothing. Aaron Stauber, president of Rugby Realty said it will probably empty out Gulf Tower and mothball it once all existing leases expire.
“It’s cheaper to just shut the lights off,” he said. “At some point, we would move on to greener pastures.”
In addition to the commercial real estate woes, the city is also wrestling with union contracts.
Please consider Sounding the alarm: Pittsburgh Controller’s letter should kick off fiscal soul-searching
It’s only March, and Pittsburgh’s 2024 house-of-cards operating budget is already falling down. That’s the clear implication of a letter sent by new City Controller Rachael Heisler to Mayor Ed Gainey and members of City Council on Wednesday afternoon.
The letter is a rare and welcome expression of urgency in a city government that has fallen in complacency — and is close to falling into fiscal disaster.
The approaching crisis was thrown into sharp relief this week, when City Council approved amendments to the operating budget accounting for a pricey new contract with the firefighters union. The Post-Gazette Editorial Board had predicted that this contract — plus two others yet to be announced and approved — would demonstrate the dishonesty of Mayor Ed Gainey’s budget, and that’s exactly what’s happening: The new contract is adding $11 million to the administration’s artificially low 5-year spending projections, bringing expected 2028 reserves to just barely the legal limit.
But there’s still two big contracts to go, with the EMS union and the Pittsburgh Joint Collective Bargaining Committee, which covers Public Works workers. Worse, there are tens — possibly hundreds — of millions in unrealistic revenues still on the books. On this, Ms. Heisler’s letter only scratched the surface.
Similarly, as we have observed, the budget’s real estate tax revenue projections are radically inconsistent with reality. Due to high vacancies and a sharp reduction in the common level ratio, a significant drop in revenues was predictable — but not reflected in the budget. Ms. Heisler’s estimate of a 20% drop in revenues from Downtown property, or $5.3 million a year, may even be optimistic: Other estimates peg the loss at twice that, or more.
Left unmentioned in the letter are massive property tax refunds the city will owe, as well as fanciful projections of interest income that are inconsistent with the dwindling reserves, and drawing-down of federal COVID relief funds, predicted in the budget itself. That’s another unrealistic $80 million over five years.
Pittsburgh exited Act 47 state oversight after nearly 15 years on Feb. 12, 2018, with a clean bill of fiscal health.
It has already ruined that bill of health.
Flashback February 21, 2018: Act 47 in Pittsburgh: What Was Accomplished?
Pittsburgh’s tax structure was a much-complained-about topic leading up to the Act 47 declaration. The year following Pittsburgh’s designation as financially distressed under Act 47 it levied taxes on real estate, real estate transfers, parking, earned income, business gross receipts (business privilege and mercantile), occupational privilege and amusements. The General Assembly enacted tax reforms in 2004 giving the city authority to levy a payroll preparation tax in exchange for the immediate elimination of the mercantile tax and the phase out of the business privilege tax. The tax reforms increased the amount of the occupational privilege tax from $10 to $52 (this is today known as the local services tax and all municipalities outside of Philadelphia levy it and could raise it thanks to the change for Pittsburgh).
The coordinators recommended an increase in the deed transfer tax, which occurred in late 2004 (it was just increased again by City Council) and in the real estate tax, which increased in 2015.
Legacy costs, principally debt and underfunded pensions, were the primary focus of the 2009 amended recovery plan. The city’s pension funded ratio has increased significantly from where it stood a decade ago, rising from the mid-30 percent range to over 60 percent at last measurement.
The obvious question? Will the city stick to the steps taken to improve financially and avoid slipping back into distressed status? If Pittsburgh once stood “on the precipice of full-blown crisis,” as described in the first recovery plan, hopefully it won’t return to that position.
I could have answered the 2018 obvious question with the obvious answer. Hell no.
No matter how much you raise taxes, it will never be enough because public unions will suck every penny and want more.
On top of union graft, and insanely woke policies in California, we have an additional huge problem.
Hybrid work has put office building owners in a bind and could pose a risk to banks. Landlords are now confronting the fact that some of their office buildings have become obsolete, if not worthless.
Meanwhile, in Illinois …
Please note the Chicago Teachers’ Union Seeks $50 Billion Despite $700 Million City Deficit
The CTU wants to raise taxes across the board, especially targeting real estate.
My suggestion, get the hell out...
Anyone who didn’t see this coming is just flat out blind.
Even without Covid, Pittsburgh has been a long downward trend downtown... Yes they have built a few more office towers, but overall Downtown Pittsburgh is a bigger and bigger dump every year.
Yes the Theater District did liven up that area bit, and they have been converting old office buildings into condos as fast as they can, but there just still isn’t really a draw to be downtown, and the office building being turned to apartments was to try to do something with all the empty office space that Pitt already has, more and more of it is coming...
BNYMellons lease on the BNYMellon tower is up in a few years, and they will vacate, most if not all of the floor splace they have there.... and that’s no small building.. etc etc etc.
I just do not see Pittsburgh’s fate improving in the near term.
More luxury living space for migrants.
Yeah, it started to go downhill many years ago. My cousin once owned Beakman Properties which owned a building in the Scranton Business Park. They had two great anchors of a paper company and a refrigeration company. He sold it to this quasi-Amish dude and the whole thing eventually went south, due to an unpermitted gymnasium and the owner bilking tenants in the little coffee shop.
That’s what I was thinking.
All those empty and abandoned buildings will be co-opted for illegals. Can you imagine the mess that it going to create? How long before some of them start going up in flames?
Democrat run cities are going full out Haiti.
Wall them off and come back in a few years and see what’s left. Although the survivors are not going to be the type you want to mess with.
I keep hearing how Florida has gotten really expensive. People leaving for other states.
There are problems everywhere?
Demolish the empty buildings.
Return downtowns to agriculture.
Even worse, with the exception of the Grievance Industry, healthcare, and maybe education, industries are better served outside of a city.
-Accommodation
-Accommodation and Food Services
-Administrative and Support Services
-Administrative and Support and Waste Management and Remediation Services
-Agriculture, Forestry, Fishing and Hunting
-Air Transportation
-Ambulatory Health Care Services
-Amusement, Gambling, and Recreation Industries
-Animal Production
-Apparel Manufacturing
-Arts, Entertainment, and Recreation
-Beverage and Tobacco Product Manufacturing
-Broadcasting (except Internet)
-Building Material and Garden Equipment and Supplies Dealers
-Chemical Manufacturing
-Clothing and Clothing Accessories Stores
-Computer and Electronic Product Manufacturing
-Construction
-Construction of Buildings (if you even need them)
-Couriers and Messengers
-Credit Intermediation and Related Activities
-Crop Production
-Data Processing, Hosting, and Related Services
-Education and Health Services
-Educational Services
-Electrical Equipment, Appliance, and Component Manufacturing
-Electronics and Appliance Stores
-Fabricated Metal Product Manufacturing
-Finance and Insurance
-Financial Activities
-Fishing, Hunting and Trapping
-Food Manufacturing
-Food Services and Drinking Places
-Food and Beverage Stores
-Forestry and Logging
-Funds, Trusts, and Other Financial Vehicles
-Furniture and Home Furnishings Stores
-Furniture and Related Product Manufacturing
-Gasoline Stations
-General Merchandise Stores
-Goods-Producing Industries
-Grievance Industry (large numbers of payees in cities but not the payers nor overseers)
-Health Care and Social Assistance (large numbers of payees but not payers in cities)
-Health and Personal Care Stores (large numbers of payees but not payers in cities)
-Heavy and Civil Engineering Construction
-Hospitals (heavily controlled by government socialized medicine)
-Information
-Insurance Carriers and Related Activities
-Internet Publishing and Broadcasting
-Leather and Allied Product Manufacturing
-Leisure and Hospitality
-Lessors of Nonfinancial Intangible Assets (except Copyrighted Works)
-Machinery Manufacturing
-Management of Companies and Enterprises
-Manufacturing
-Merchant Wholesalers, Durable Goods
-Merchant Wholesalers, Nondurable Goods
-Mining (except Oil and Gas)
-Mining, Quarrying, and Oil and Gas Extraction
-Miscellaneous Manufacturing
-Miscellaneous Store Retailers
-Monetary Authorities - Central Bank
-Motion Picture and Sound Recording Industries
-Motor Vehicle and Parts Dealers
-Museums, Historical Sites, and Similar Institutions
-Natural Resources and Mining
-Nonmetallic Mineral Product Manufacturing
-Nonstore Retailers
-Nursing and Residential Care Facilities
-Oil and Gas Extraction
-Other Information Services
-Other Services (except Public Works)
-Paper Manufacturing
-Performing Arts, Spectator Sports, and Related Industries
-Personal and Laundry Services
-Petroleum and Coal Products Manufacturing
-Pipeline Transportation
-Plastics and Rubber Products Manufacturing
-Postal Service
-Primary Metal Manufacturing
-Printing and Related Support Activities
-Private Households
-Professional and Business Services
-Professional, Scientific, and Technical Services
-Publishing Industries (except Internet)
-Rail Transportation
-Real Estate
-Real Estate and Rental and Leasing (if you even need it or it isn't government operated)
-Religious, Grantmaking, Civic, Professional, and Similar Organizations
-Rental and Leasing Services
-Repair and Maintenance
-Retail Trade
-Scenic and Sightseeing Transportation
-Securities, Commodity Contracts, and Other Financial Investments and Related Activities
-Service-Providing Industries
-Social Assistance (mostly government run. It's a big minus, not an plus.)
-Specialty Trade Contractors
-Sporting Goods, Hobby, Book, and Music Stores
-Support Activities for Agriculture and Forestry
-Support Activities for Mining
-Support Activities for Transportation
-Telecommunications
-Textile Mills
-Textile Product Mills
-Trade, Transportation, and Utilities
-Transit and Ground Passenger Transportation (Public transit is subsidized and still loses money. Needed less as industries leave cities.)
-Transportation Equipment Manufacturing
-Transportation and Warehousing
-Truck Transportation
-Utilities
-Warehousing and Storage
-Waste Management and Remediation Services
-Water Transportation
-Wholesale Electronic Markets and Agents and Brokers
-Wholesale Trade
-Wood Product Manufacturing
Biden has made arrangement to have all classified federal records from the period of his”presidency” stored in vacant buildings i Pennsylvania....He reasons that since the buildings are vacant, no one will look at the documents.
If certain cities can provide a safe and consumer friendly downtown environment, some of this space could become housing - preferably targeting segments of the population that are… low maintenance. This would require actually fighting crime, taking out the trash, and not having democrats run any part of it.
So, scratch that idea.
> There is nothing to stop these cities from looking like Detroit. <
I gotta agree. Take Pittsburgh, for example. Pittsburgh has been run by Democrats since the 1930s. But those Democrats were by and large old-school Blue Dog Democrats.
No longer. Both the city and the school district are now in the hands of “progressives” and their insane, woke ideas. That’s a one-way trip. No going back to the old days.
I heard the paper company was moving some folks to Stamford and Bob Vance was engaged to a lady in paper sales. New owner sells beets apparently.
Can we get serious for a moment, and address an important question?
Who is hotter, Pam or Angela?
Answer: it depends on the time span. Angela for a weekend. Pam for anything longer than that.
THE PLAN?
* Bankrupt the city
* Buy up valuable real estate for next to nothing
* Tear down buildings
* Rebuild “Smart Cities” using taxpayer revitilation $$$
I’m surprised, everything I’ve heard about downtown Pittsburgh in recent years is that it was vibrant and lively with nightlife, bars, restaurants. I haven’t visited the city myself in 20 years, just what I had heard.
Wham Pam Thank You Ma’am
Pamalamadingdong
Spamster
Pam! Pam! PamPamPam!
The theater district thanks to URA pumping tax money galore has over the last few decades improved, but the rest of downtown is a crapfest.
Parts of downtown that are now not places I would want to walk during broad daylight, and I have never felt that way before in Pittsburgh, and I’ve lived here since the 80s.
Homeless encampments in the parks and burms, its a dump.
If you stay in the theater district you get the flash, go in the other parts and you see the decay full on.
I’ve worked downtown on and off since hte 90s... every time I get a new stint downtown, the place is more run down than the last time...
Downtown Pittsburgh is such a dump, there isn’t even a McDonald’s left open in the entire downtown area... Not that I’m a huge fan of McDonalds, but that should give you an idea of how bad its gotten.
Hire Chief Wahoo from Cleveland.
Get him to open a Casino in downtown Picksburg; viola', better schools, more graduates, a gazillion more jobs; all that "Extra Tax Money"; to rebuild Utopia.
What could go wrong?
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