The current real estate market is currently filled with uncertainty. Deals are getting harder to pencil due to higher interest rates and although multifamily, self storage, and other asset classes are doing pretty well, there is the office space wherein there is no space for growth and has the potential to have trickle-down effects to the whole real estate markets.
In TLP’s third solocast, we are with our very own The Limited Partner Podcast Host, Jake Wiley. He is a podcaster, author, entrepreneur, CPA, former CFO, and head core client relationships for Private Equity Real Estate and Alternative Investments. Today’s podcast episode is focused on the current status of the office asset class and the debt markets. And the trickle-down effects of the office asset class to the entirety of the real estate markets.
Current Status of the Office Asset Class
According to Jake, listed below is the current status of the office asset class.
- Since COVID hit, people prefer to work at home thereby reducing the demand for office spaces.
- Blackstone and Starwood started to limit investor redemptions for their office portfolios in general.
- Public office landlords start to cut dividends and like lowering their expectations.
- There is a surge in demand for Class A+ office space because they want the best amenities to compel employees to go back to working in the office.
- 20% of office stock in the US is no longer fit for purpose. They are basically obsolete.
- Repurposing offices into residential spaces is out of the picture because of the underlying costs and valuation differences.
The Current Status of the Debt Markets
According to Jake, listed below is the current status of the debt markets.
- Deals are getting harder to pencil out because it is easier for the banks not to approve loans.
- Increased rates of debt will increase the amount of equity and will require deals to have minimum returns of at least 10% which is not really realistic.
- Interest cap buy downs are so egregious that they are very expensive and very consuming from the cash perspective.
The Trickle-Down Effects of Office Asset Class
We've got fed raising rates, we've got employment ticking down, we've got deals that are not closing. Then we have the office could completely spontaneously implode and what is that gonna happen to lenders and folks that are pricing assets in other asset classes? Furthermore, the office cliff consists of 20% of the office properties that are no longer able to be offices again. The vacancy rate is around 100% which means that nobody is in them. Nobody wants to be in it. What is it going to do with the rest of real estate? Nobody really knows.
Jake is not all doom and gloom. In fact, he is seeing an opportunity. He believes that the majority of wealth is built during downturns. And most opportunistic deals, especially right now, are going to be silent. And he who gets to their checkbook the fastest will make things happen and is going to win.
Who is Jake Wiley?
Jake is a podcaster, author, entrepreneur, CPA, former CFO, and head core client relationships for Private Equity Real Estate and Alternative Investments.
With nearly two decades of professional experience building businesses, solving problems, and implementing solutions, Jake has the ability to serve his clients from the perspective of having sat in their seats
He founded a Louisiana-based Residential Solar Finance and Installation Company, which was later acquired by Palmetto where he led strategic initiatives until late 2018 and then moved on to be a Chief Financial Officer and Chief Compliance Officer at an RIA fund focused on commercial solar.
He has been investing both passively and actively in Real Estate for more than 16 years, raising private funds for strategic value-add investments and long-term holds. This is a true passion of his, so much so that he has a Podcast, The Limited Partner Podcast, where he gets to interview and talk to some of the best of the best in the space to learn how they are making it happen.His diverse industry experience in both corporate and startup companies, as well as layered work experience as an executive, founder, and advisor, allow for unique, well-rounded, and informed perspectives that he is always happy to talk about.
- LinkedIn— https://www.linkedin.com/in/jakewiley/
- Website— thelimitedpartner.com
- Facebook— https://www.facebook.com/TheLimitedPartner
- Instagram— https://www.instagram.com/jjakewiley/
- Twitter— https://twitter.com/jjakewiley
If you'd like to say hello, you can find Jake at @JJakeWiley on Instagram and Twitter, and on LinkedIn.
You will hear quite a bit of real estate terminology in every episode. We've aggregated the most common questions for you in the link below!
