Seizing Distress

Seizing Distress

Transforming Vacancy Into Opportunity

Amid the pervasive challenge of vacant office spaces affecting every major market, cities grapple with the aftermath. As these assets depreciate, new avenues for alternative utilization emerge. Escalating office vacancies undermine price justifications, creating a boon for developers. A case in point: Clarion Partners acquired a San Francisco downtown office tower for $107 million, later selling it to Presidio Bay for just $41 million. Floating rates and substantial markdowns leave office proprietors with limited refinancing options. Distressed commercial real estate surged by $8 billion, marking the largest quarterly uptick since Q2 2020. While some are looking to acquire properties at a discount, others aim to increase lending and fill a growing gap in the capital markets.

Diminished lending from regional banks and mortgage REITs paves the way for a select few to secure advantageous terms and higher rates from borrowers. Invesco Real Estate, which has a long track record of raising funds from institutional investors for real-estate credit funds, is raising its first such fund targeting the retail audience. While repurposing office spaces as residences seems intuitive, not all opportunities are uniform. Interestingly, older buildings with functional windows, modest heights, and narrower layouts prove more favorable. Navigating zoning regulations poses another hurdle. During plummeting asset valuations, ingenuity proves its worth in uncertain times, offering prospects to the intrepid seeker.


Original Publication Credit: Wall Street Journal

Image Credit: Commercial Observer

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