It’s been 30 years for the reason that business real estate market has been this bad – and that represents a generational entry point for investment, in line with a top developer.
The trend towards hybrid working and high rates of interest have caused prices for business real estate in major cities to plummet. Morgan Stanley warned earlier this yr that office prices could fall by 30% as a result of lower demand.
But Don Peebles, chairman and CEO of Peebles Corporation, said his company tries to develop when market supply is tight and buy when it sees exceptional value.
“And what we’re seeing here in commercial office space is essentially one-time…buying opportunities.” he told CNBC on Friday. “There hasn’t been anything like this since the early 1990s.”
At the time, a banking crisis caused tons of of lenders to shut, allowing Peebles to buy some buildings for as little as 20 cents on the dollar, while properties held by failed savings and loans were liquidated.
In fact, the acquisitions that formed Peebles Corp. then operating in cities like Washington, D.C., was the muse that allowed the corporate to develop in other parts of the country, the CEO said.
As for today’s business real estate market, Peebles estimates that business office constructing values are down 60-70% in San Francisco and Washington, DC, and 70% or more in Los Angeles.
But Peebles sees an upswing ahead that developers can reap the benefits of in the event that they have the stomach for it.
“These are global cities that will eventually come back,” he said. “So you have to have the desire to buy, understand how to stabilize the assets based on current income potential, and then wait.”
Of course, he expects the market to adapt to the brand new hybrid work environment and the availability of economic office space to say no as many buildings are “converted, repositioned or demolished.”
This reflects the statement of other observers. Fred Cordova, CEO of real estate consulting firm Corion Enterprises, said some properties will get better while others may delay — or not.
“And then there are the others that are basically worthless – the D class,” he said Assets in February. “They simply have to be torn down. That’s probably at least 30% of all offices in the country.”
Like Peebles, other players within the business real estate space also see opportunities. For example, Miami-based mortgage lender KDM Financial launched a $350 million fund earlier this yr with 20% in business non-residential real estate.
“I think I’m a little bit contrarian in that I continue to believe in office,” Holly MacDonald-Korth, CEO of KDM Financial, said in an interview with Assets earlier this yr. “We’re in a trough right now… But I don’t think so [in the] In the long term, offices will disappear forever.”
