A major activist investor is betting stalled return-to-work plans will create more problems in commercial real estate.
Jonathan Litt of Land and Buildings has been shorting REITs with high exposure to office space for three years, and he has no plans to change gears.
“If you don’t have rent growth and your vacancies are increasing and you have huge operating expenses to run an office building, you’re falling back quickly,” the firm’s chief investment officer said on Tuesday. to CNBC’s “Fast Money.”
Litt first warned Wall Street that an “existential hurricane” was about to hit the area in May 2020. Now he says the “hurricane has landed.”
He doubles down on the call – citing skyrocketing interest rates and high inflation. Litt calls them two factors he hadn’t anticipated when he started shorting these companies in May 2020.
DC-based JBG Smith Properties is one of Litt’s main shorts. That’s down 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, DC is one of the toughest markets in the country today,” Litt noted. “They have a substantial office portfolio.”
He adds that the crackdown on loans is making the problems worse.
“It’s not a work-from-home story anymore. It’s a funding story. It’s kind of like the mall business has gone from being the mall problem to being a funding problem,” Litt said. “Now it’s a funding issue. And as these debts come due, there’s really nowhere to go because lenders aren’t lending to the space.”
JBG Smith did not immediately respond to a request for comment.