This article is the final installment in a series that delves into the truth behind negative headlines surrounding the office sector. Previous articles have explored topics such as “CRE Experts Dismiss Doom-and-Gloom Office Headlines,” “The Reality of Returning Office Space,” and “Examining Maturing Office Debt.”
In recent years, the office sector was seen as a safe bet for investors. However, according to Preqin’s July 2020 report, this trend has shifted with only 55% of all capital invested in U.S. commercial real estate since 2014 going towards offices.
But despite these challenges, experts believe there are still opportunities to be found within the struggling office market. Eli Randel from CREXi comments that entrepreneurial investors may have an opportunity to purchase undervalued properties and potentially make significant profits if they can navigate financing obstacles.
Tony Russo from Lee & Associates agrees and adds that this type of market presents an opportunity for creative entrepreneurs with access to funds.
On The Financial Side
One major issue affecting commercial real estate is securing funding for purchases and renovations due to lenders pulling back on loans. However, America Mims from KDC suggests partnering with landlords who may not have enough money available when their loans come due but are willing to work together on deals.
Adam Finkel from Tower Capital also notes that well-located properties with stable occupancy rates could still secure financing through banks or life companies despite current challenges in obtaining loans.
Conversions Are Possible
There has been much discussion about converting offices into other types of spaces like residential or retail use; however, many buildings do not lend themselves easily towards these conversions. Despite this challenge though there have been some success stories such as Lee & Associates’ involvement in converting a large Park Ridge property into multifamily units while MDL Group’s Hayim Mizrachi mentions another successful conversion project taking place nearby Schaumberg where an old office building will become a community center.
But not all office spaces need to be converted; Hayim Mizrachi explains that they have advised some owners to use their vacancies as an advantage and sell the property in parts, such as creating smaller office condos for owner-users.
The key takeaway is that conversions can work under certain conditions. Ira Singer from Mosaic Construction notes that buildings can also find new life as schools or churches, while KDC’s Aarica Mims adds that Class B or C buildings in desirable locations may be acquired and reimagined into something else entirely.
Looking at The Positive
Despite the challenges facing the office sector, experts believe there are still opportunities for investors with capital. Adam Showalter from Stream Realty Partners points out that top-performing assets are currently undervalued but may not be available due to long-term leases; however, he believes this could change given current market conditions. Eli Randel echoes this sentiment by mentioning how successful investor Sam Zell made billions off distressed assets and predicts others will follow suit once again when faced with similar opportunities.
In conclusion, although it may seem bleak at first glance for the office sector, there are still potential investment opportunities waiting to be discovered by savvy entrepreneurs willing to take on a challenge.
