It’s been 30 years since the commercial real estate market has been this bad – and that represents a generational entry point for investment, according to a top developer.
The trend towards hybrid working and high interest rates have caused prices for commercial real estate in major cities to plummet Morgan Stanley warned about this at the beginning of the year Office prices could fall by 30% due to 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 hundreds of lenders to close, allowing Peebles to purchase 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 foundation that allowed the company to develop in other parts of the country, the CEO said.
As for today’s commercial real estate market, Peebles estimates that commercial office building 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 take advantage of if 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 new hybrid work environment and the supply of commercial office space to decline as many buildings are “converted, repositioned or demolished.”
This reflects the statement of other observers. said Fred Cordova, CEO of real estate consulting firm Corion Enterprises Some properties will recover, while others may or may not hold their own.
“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 in the commercial real estate space also see opportunities. For example, Miami-based mortgage lender KDM Financial launched a $350 million fund earlier this yearwith an allocation of 20% for non-residential commercial properties.
“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 year. “We’re in a trough right now… But I don’t think so [in the] In the long term, offices will disappear forever.”