CCP Commercial Office Digest

Commercial Office Digest

Callahan Capital Partners is a real estate private equity firm focused exclusively on the origination, acquisition and management of high quality office assets throughout the United States.

“The TI and the concessions have increased dramatically, interest rates have doubled, and when you add all that in, you're going to be building $1,100 or $1,200 per SF to get an adequate yield on cost.”

Boston developers speak about what it takes to build an office development that generates demand in today’s market, and the likely slowdown of new supply to the market triggered by the extreme increase in cost to build. Bisnow recaps a recent panel with Boston based developers here.

“Start working in the office three days a week or take a severance package.”

Executives at Roblox, as well as other large tech companies, say their employees are more innovative and collaborative in-person, and thus are moving from a request to return to office to a more stern ultimatum. Read more here.

“The banks are in danger of setting off a doom-loop scenario where losses on the loans trigger banks to cut lending, which leads to further drops in property prices and yet more losses.”

The WSJ journal reports on the credit crunch that is developing as total transactions are down and borrowers cannot return funds to banks to recycle.

“Due to large, expected value declines, the office sector has the largest funding gap by far at approximately $38.0 billion during 2024.”

CBRE Econometric Advisors forecasts a vast funding gap in 2024 (the difference between the maturing loan and the debt funding able to be achieved in a refinance) in a market when lenders are more selective, and values have decreased. Given the circumstances, owners will be pressured to either find mezzanine financing to refinance or extend the loan, or default on the asset. Read more here. 

Charts We are Talking About

As further support for flight to quality, JLL Capital Markets projects that Tier 1 assets (identified as assets built 2015 or later) are more capital efficient due to the ability to sign longer term leases at higher rents with less required landlord work.

Feel free to share this newsletter. New subscribers can sign up HERE to be included on future Digest editions.

Questions? Thoughts? Want to connect? Please reach out to [email protected]