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CRE's Biggest Flops Of The Decade

It was supposed to be a decade of recovery and rebuilding after the knockout punch of the Great Recession.

Instead, the last 10 years saw the longest bull market in history, a roaring investment climate and a stretch of innovation and discovery that changed not just commercial real estate, but the way we all live (there wasn’t always an app for that). 

But not everything was a success, and with big money in CRE comes the potential for big mistakes. Here at Bisnow, we picked 10 of the decade’s biggest flops — but don't take our word for it, let us know which of them you consider the biggest mistake below!

WeWork Adam Neumann
WeWork's former CEO, Adam Neumann, taking a tequila shot on stage with Creator Awards winners in 2017.

WeWork's IPO: Adam Neumann was hailed as a visionary and a brilliant business leader for his coworking startup, WeWork, but the truth was ultimately much more complicated.

After weighing in with a $47B valuation less than a year ago, the world finally got a look at WeWork’s internal financials via its initial public offering filed with the Securities and Exchange Commission in August, and it was swiftly rejected by Wall Street, its investment bankers and, most fittingly, much of the commercial real estate community it had been courting.

Now in the midst of another round of layoffs and attempts to pull out of some of its leases, WeWork is being steered by its Japanese backer, SoftBank, as it tries to regain footing. And Neumann? He was ousted almost exactly a month after that IPO filing. 

CRE's Biggest Flops Of The Decade
Salesforce Park

Salesforce Transit Center: It has long been a mantra that San Francisco has an inferiority complex about being as sophisticated as New York. But in the case of the Salesforce Transit Center, which was billed as the “Grand Central Station of the West,” the City by the Bay maybe should have held its horses a bit.

Plagued by construction delays, balking investors, squabbles over its Pelli Clarke Pelli design and a hullabaloo over its corporate naming ($110M for a 25-year deal), the center finally opened in August 2018, only to be swiftly closed again after cracks were discovered in some of its support beams.

The to’ing and fro’ing over its stability went on, as did repairs, until it was ultimately reopened a year later. Total price tag when all was said and done: $2.2B.

CRE's Biggest Flops Of The Decade

Amazon HQ2 in NYC: Who wouldn’t want an Amazon headquarters in their town? Turns out an entire borough of New York.

After playing the CRE version of The Hunger Games with municipalities and urban planners across the U.S. in search of new headquarters, tech behemoth Amazon said it was settling on a split decision, putting new outposts in Virginia and in Long Island City, Queens.

It turned out that the expectation that it would be welcomed with open arms (and tax breaks) by New Yorkers was a premature one: Despite its $1 trillion market cap, Amazon failed to convince the community or many of its civic leaders that $3B in tax breaks for HQ2 was a good deal, and pulled the plug on its plans in February.

City of Miami Gardens Opportunity Zone
Miami Gardens opportunity zone map

Opportunity zone investment: Opportunity zones first sparked the public’s interest as a bipartisan program championed by now-presidential candidate Sen. Cory Booker (D-NJ) designed to breathe new life and investment into distressed communities nationwide. The program was launched in 2017 as part of the Tax Cuts and Jobs Act and contains three tax breaks for investors looking to defray their capital gains. It was heavily promoted by the Trump administration as a way to revitalize struggling urban areas.

It seemed simple enough: After the first set of guidelines appeared, 8,700 census tracts across the U.S. were designated by governors — and D.C. Mayor Murial Bowser — as OZs. The localities then sat back and waited for the investment to roll in.

It hasn’t been that easy. From withering criticism about some of the “distressed” zones designated (like this superyacht marina in West Palm Beach) to an overall criticism of giving tax breaks to developers who don't need it, to a wave of irritation about how slowly the Internal Revenue Service has rolled out guidance, opportunity zones have floundered in states like California and gained only tepid support in others.

Perhaps most disappointing for the program's writers, the investment community has largely dismissed the financial benefits as a nice bonus for deals that would work without it — not something that will drive investment to distressed areas that wouldn't have any otherwise. What it has mostly achieved is speeding up gentrification and bringing in consulting fees for lawyers and accountants.

Now, the program is back on the hook as a regular lightning rod for the 2020 presidential race’s candidates, and is looking at a major overhaul by some of its original sponsors.

Millennium Tower, San Francisco,

Millennium Tower tilting: What do you get when you put together football legend Joe Montana, the West Coast’s most expensive condos and a thing called Colma sand? Answer: a huge engineering disaster.

Opened at the beginning of the decade, the 58-story Millennium Tower at 301 Mission St. was home to celebrities (including Joe Cool himself), billionaires and all types of well-heeled San Franciscans, who enjoy its central location, private concierge, first-class restaurants and wine cellar. That is, until they found out in May 2016 that the entire building was sinking and tilting, with 60-foot to 90-foot piles driven into the San Francisco Bay mud and Colma sand, not bedrock.

The building had leaned 14 inches and sunk 18 inches by 2018, and become famous around the world for its continuing problems — the glass windows and facade have begun popping — and its flurry of lawsuits, including one that blames the debacle on the Transbay Joint Powers Authority as they built the Salesforce Transit Center (see flop No. 1).

CRE's Biggest Flops Of The Decade
A partial rendering of Triple Five Group's American Dream Meadowlands mall, current as of May 2019
 

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American Dream Mall: It took 20 years to get the 3M SF American Dream Mall built in East Rutherford, New Jersey, and it seemed like everything that could go wrong with the project did.

Originally dubbed Xanadu, the mall went through several iterations and developers, including a pause in 2009 when the financial crisis imploded — one of its supporting partners was a Lehman Bros. affiliate — as it attempted to build its 16-story indoor ski slope and mega-sized roller coaster (plus 450 retail storefronts and a water park) for an estimated 40 million visitors.

It also drew the ire of then-Gov. Chris Christie, who called it "the ugliest damn building in New Jersey and maybe America." It was finally brought home by Canadian powerhouse Triple Five Group, opening as the U.S.’ second-biggest mall in 2018, just in time for the retail crisis brick-and-mortar is facing and about 10 miles from New York City.

CRE's Biggest Flops Of The Decade
World Trade Center Oculus Mall

Westfield World Trade CenterSpeaking of New York City, it is not immune to long-delayed, over-budget mall projects. Look no further than the mall at the World Trade Center's Oculus transit hub, underneath a structure that resembles a dinosaur skeleton.

The Oculus was designed by architect Santiago Calatrava to replace the PATH commuter rail station in Lower Manhattan that was damaged in the Sept. 11, 2001, terrorist attacks. It finally opened in 2016 after years of delays and a price tag that ballooned to $4B.

In the three-plus years since, the mall, which is connected underground to Brookfield Place and the new skyscrapers at the World Trade Center complex, hasn't been the source of much good news for owner Unibail-Rodamco-Westfield, which has a 99-year ground lease on the property.

The Oculus opened at roughly 60% leased, with dozens of storefronts vacant. Brands like Dune London, Bebe and True Religion pulled out of their leases weeks before it opened. Less than a year later, the skylight sprang a leak, causing several stores to close as they flooded.

In the years since, the retail environment Westfield World Trade Center occupied in New York City cratered around it. Average retail rents in Manhattan have dropped every quarter for two years. The 75K SF retail space at 3 World Trade Center is completely empty more than a year after the building opened. 

URW has a plan to juice the shopping experience at the mall — with less shopping. Its U.S. head told Bloomberg this year it plans to reduce the proportion of fashion retailers, from half of the mall's footprint to roughly a third. Even with the food and exercise options to replace the apparel brands, it still might not be enough to overcome the mall's inherent hurdle: The space is enormous.

"A good mall has multiple opportunities for serendipity as the basis for shopping, and this mall undermines that principal, because you’re bumping into open space, not into another store,” NYU urban planning professor Mitchell Moss told Bloomberg. “It’s beautiful interior space, but it’s not really conducive to shopping.”

Hoover Building FBI HQ
The FBI's current HQ, the J. Edgar Hoover Building on Pennsylvania Avenue

FBI's headquarters search: It has been a long and winding road for the Federal Bureau of Investigation’s new headquarters, and it’s one that has led them nowhere.

In 2017, the General Services Administration, the department that oversees the government's real estate, recommended the HQ be relocated from the crumbling J. Edgar Hoover Building at 935 Pennsylvania Ave. NW to one of three suburban sites in Springfield, Virginia, or Landover or Greenbelt, both in Maryland. But that decision was reversed seven months later, with the GSA saying the FBI had asked to stay in its original digs.

That development drew immediate fire from both local civic leaders and federal lawmakers, who floated the theory that President Donald Trump was keeping the FBI in place so that the site wouldn’t be developed into a luxury hotel that might compete with his Trump International Hotel, located directly across the street.

As of this writing, four House committees and subcommittees are aiding the Office of the Inspector General for the Justice Department, who launched an inquiry into the about-face last July.

CRE's Biggest Flops Of The Decade

Elon Musk's High-Speed Rail: Tech whiz kid Elon Musk has a long list of moonshot ideas (some of them literally about going to the moon), but none of them captured the imagination of Californians the way his hyperloop railway throughout Los Angeles did.

Deemed "revolutionary" and "futuristic," Musk first unveiled his plan in 2013, saying his Boring Co. would debut the ultra-fast rail system in the famously traffic-jammed city, before creating a tunnel between Washington, D.C., and New York City. That plan hit the skids when Musk publicly imploded throughout 2018 and 2019, attracting the interest of the Securities and Exchange Commission for his remarks about electric car company Tesla and driving its share price to new lows.

For now, it appears the hyperloop, which needs to go under or around existing infrastructure, is at the very least on ice.

CRE's Biggest Flops Of The Decade

The "wall of maturities": It was supposed to be a doomsday scenario: A huge wave of CMBS-backed loans inked in 2006 and 2007 were maturing between 2015 and 2017, and they were going to need much stricter refinancing under current credit standards, a task that was sure to fall apart and take CRE with it. Some owners were even stampeding to offload properties in the months leading up to the deadline, worried about the much lower loan-to-value ratio that was looming ahead.

So what happened? By most accounts, not much of anything; much of it was liquidated ahead of time or at maturity, with $120.3B in securitized mortgage debt paid off between May 2016 and April 2017. But now, a new fear: the $100B of CMBS debt due for refinancing between 2019 and 2020.