As commercial real estate tumbles, some see opportunity in offices

investmentnews.com:

The downturn in the commercial real estate market has investors looking for long-term buying opportunities — but the market’s not for the faint of heart, nor of cash.

Office real estate in particular has taken a big hit as employers have given in to remote work or hybrid arrangements, dramatically lowering their need for square footage. That has caused occupancy rates to plummet, putting some property owners in a bind.

“This kind of scenario happened during the Great Recession. We have seen some Class A buildings — beautiful, brand-new buildings … being sold for pennies on the dollar,” said Boris Sanchez, CEO of commercial real estate firm Sanmore Investments. In the Houston area, where his company operates, one office building that fetched $140 per square foot in 2008 recently sold for less, he noted.

“There is a huge opportunity, especially in the office market, to pick up some of this,” Sanchez said. “I believe that the whole work-from-home thing will eventually taper off and become more hybrid.”

Over the past year, delinquencies by commercial mortgage-backed securities have risen gradually, going from 3.2% to 3.9% on average, recent data from Trepp show. But in the office real estate segment, the rate has nearly tripled, to 4.5%, compared with just under 1.7% a year prior.

Earlier this year, Pimco’s Columbia Property Trust, an office real estate investment trust, reportedly defaulted on more than $1.7 billion in debt associated with seven buildings, according to Seeking Alpha.

In offices across the country, the average vacancy rate was nearly 19% as of the end of the first quarter, data from Cushman & Wakefield show. The increase in vacancies of 550 basis points seen during the pandemic is slightly higher than the