August 23, 2023 | The Accordant Team
Midway through 2023, media coverage of the challenges many commercial office real estate owners are confronting has reached a feverish level. One may wonder if the sector’s current low vacancy rates and refinancing requirements will ultimately bring down our entire economy. We think not.
It’s important for potential individual investors to recognize that not all commercial office real estate is created equal. For example, one might think two class-A office buildings* in a major metropolitan location would provide similar investment returns. But variables that include acquisition dates, purchase amounts, loan terms, tenant strength, rent rolls, and projected hold times can influence a property’s performance and investment returns.
If you have clients who are considering a private real estate allocation, it’s helpful that they understand the investment profiles and strategies of the underlying property or properties. For office properties today, investment managers that pursue a conservative “core” strategy with low loan-to-value ratios and that have long weighted average fixed lease terms may carry significantly lower risk than other properties that are more opportunistic.
