A major activist investor is betting that a stalled return-to-office plan will spark more trouble in commercial real estate.
Land and Buildings’ Jonathan Litt has been shorting REITs with high office space risk for three years, and he has no plans to switch gears.
The firm’s chief investment officer told CNBC, “If your rents aren’t growing, your vacancy rates are rising, and you have huge operating expenses to run office buildings, then you’re going backwards fast.”Fast money” Tuesday.
Lite first to warn Wall Street’existential hurricaneis about to hit the industry in May 2020. Now, he said, “the hurricane has made landfall. “
He doubled down on the call — citing surging interest rates and high inflation. Little called them two factors he didn’t anticipate when he first started shorting the companies in May 2020.
Based on DC JBG Smith Properties Is one of Lite’s main shorts. It has fallen 58% since the World Health Organization declared Covid-19 a pandemic on March 11, 2020. So far this year, JBG Smith is down 20%.
“Washington, D.C. is one of the toughest markets in America today,” Little noted. “They have a huge portfolio of offices.”
The crackdown on lending compounded the problem, he added.
“It’s no longer a work-from-home story. It’s a financing story. It’s kind of like the mall business going from a mall problem to a financing problem,” Little said. “Right now, it’s a question of financing. As these debts mature, there’s really nowhere to go because the lenders aren’t lending to the space.”
JBG Smith did not immediately respond to a request for comment.