A major activist investor is betting stalled return-to-office plans will stir up more trouble in commercial real estate.
Land and Buildings' Jonathan Litt has been shorting REITs with high office space exposure for three years, and he has no plans to shift gears.
"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 told CNBC's "Fast Money" on Tuesday.
Litt first warned Wall Street an "existential hurricane" was about to hit the sector in May 2020. Now, he's saying the "hurricane has landed."
He's doubling down on the call — citing spiking interest rates and high inflation. Litt calls them two factors he didn't anticipate when he first started shorting these companies in May 2020.
DC-based JBG Smith Properties is one of Litt's major shorts. It's down 58% since the World Health Organization declared Covid-19 as a pandemic on March 11, 2020. So far this year, JBG Smith is off 20%.
"Washington, DC is one of the toughest markets in the country today," noted Litt. "They have a substantial office portfolio."
He adds the crackdown on lending is compounding the problems.
"This isn't a work from home story anymore. This is a financing story. It's kind of like the mall business went from the mall problem to the financing problem," Litt said. "Now, it's a financing problem. 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.