Expert Ponders When It's Time to Buy, Sell Office Assets
Currently, the newest buildings with the best amenities are the winners.
The fundamental changes in office use, given the significant move to work from home, have made it difficult for companies to make long-term decisions on how to operate and for landlords to retain and attract new leases.
Al Pontius, senior vice president and national director of Marcus & Millichap’s office, industrial, and healthcare divisions, said in a recent video produced by the firm, said that while the office sector might be struggling today, it definitely will return to being a viable long-term investment.
“It’s very nuanced,” he said. “There are haves and have-nots. There are issues with older assets and asset formats and submarkets. The composition of winners and losers will be different.”
Pontius said currently, the newest most amenitized buildings are the winners.
“But it’s not all about “brand-new products,” he said, citing an “outlier,” an office rehab in Southern California that put itself into a much higher condition and was 100% leased post-pandemic.
Given today’s conditions, Pontius said it’s understandable to ask, “Why would I buy today?”
He said the answer is not based on product type of or timing, but rather, “What the investor is trying to accomplish within their portfolio.”
Pontius also commented on whether today is a good time to sell.
Again, it’s about the seller’s objectives, he said.
“What were the objectives at the original time it was held? Have they been met?” he said.
“It’s not just what’s the overall market doing. But rather, when is the debt coming due? Can it be refinanced? Does the owner want to refinance? What is the asset’s rent roll today?
“If the owner has a favorable weighted average lease term (WAL), then it could be the time to sell now before the lease term gets shorter and the risk in the asset grows.”