Why is it so hard to "be greedy when others are fearful?"
Everyone loves quoting Warren Buffett's investment philosophy.
For 15 years, countless real estate investors have asked:
"Where's the distress?"
"Where are the discounts?"
"Where are the opportunities?"
Well, here we are.
Office values have plummeted by 40% to 75% MARKET WIDE in metros all over the U.S. Nearly $200 billion of these buildings traded near the market's peak in 2021-22. i.e., there hasn't been this much distress in the market in a generation.
But the market remains stalled. Virtually no buyers. Why?
---- Follow the dollars ----
Lender roll call:
-- Banks: generally out of the market and almost certainly out on office.
-- Insurance companies: busy dealing with existing office exposure.
-- CMBS: not dead but barely breathing for office.
-- Debt funds: alive but expensive and low (ish) leverage.
Equity roll call:
-- Core/core+: can there be 'core' in a 20%+ vacant market?
-- Value add: focused on working out of legacy funds.
-- Opportunistic: a few signs of life but difficult to raise money.
-- HNW/private buyers: interested but relatively small checks.
The harsh truth: real estate capital doesn't care about your contrarian investment thesis.
---- Silver linings ----
1. Tishman just executed a phenomenal refi on Rockefeller Center (managed to actually pull capital out of the deal) thanks to strength in the SASB CMBS market.
2. Office REITs are up 35%+ this year, a strong sign that values for strong office properties have troughed.
3. Office users have shifted from reducing footprints to neutral or even growing, and there are signs of life in the office leasing market.
---- Takeaway ----
True contrarian investing isn't just about having conviction - it's about having capital when others don't. Sometimes the tide goes out longer than your dry powder lasts.
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