An influential activist investor is wagering that postponed return-to-office initiatives will cause more disruption in the commercial real estate market.
For the last three years, Jonathan Litt of Land and Buildings has been shorting real estate investment trusts (REITs) with extensive exposure to office space.
“If you have no rent growth and your vacancies are going up and you have giant operating expenses to run an office building, you’re going backwards fast,” the firm’s chief investment officer said on CNBC’s “Fast Money” on Tuesday.
Before the “existential hurricane” slammed the financial sector in May of 2020, Litt warned Wall Street. Currently, he claims that a “hurricane has landed.”
He’s doubling down on his prediction, saying that rising inflation and interest rates prove his point. When Litt began shorting these firms in May of 2020, he says there were two things he failed to account for.
One of Litt’s primary shorts is the Washington, DC-based JBG Smith Properties. Since the World Health Organization classified Covid-19 a pandemic on March 11, 2020, cases have dropped by 58 percent. JBG Smith is 20% down so far this year.
“Washington, DC is one of the toughest markets in the country today,” said Litt. They own a wide variety of commercial buildings.
He also says that the lending freeze is making things worse.
This is no longer a tale about a person working from home. This is a tale about money and finance. “It’s as if the mall business went from having a mall problem to having a financing problem,” Litt said. “We have a financial issue now. And when these obligations mature, there is nowhere to turn since no one is providing credit in this market.