It’s also one that could have some way to run yet, according to Horn, meaning that lenders prefer a “wait-and-see” approach rather than diving in before the fog clears.
“Our habits in the United States have changed and in turn our office use has changed. And so office is going to go through a reckoning for the next two to five years, right-sizing,” he said.
“Being a lender in that space, it’s rare that it makes sense to take that risk return. Because ultimately, if you’re betting wrong, you have a real likelihood of lending on a functionally obsolete and really impairing the principal of a loan.”
Are there upsides for buyers in the office space at present?
While a sizeable percentage of current office supply in the US is excessive and needs to be removed, Horn said there are still opportunities for the right buyers to come in and purchase at deep discounts, underwriting to a certain degree of market destruction.
If, for instance, that market destruction amounted to 20%, a buyer who purchased 10 buildings could still see fair value for their investment. “If you have eight home runs and two bad ones, they’re pretty easy calculations,” Horn said.
Source: mpamag.com