It’s been 30 years since the commercial property market has been this bad and it represents the starting point for generational investment, according to a leading property developer.
The hybrid work trend and high interest rates have caused commercial property values to fall in major cities. Earlier this year, Morgan Stanley warned that office prices could fall by 30% as a result of weaker demand.
But Don Peebles, chairman and CEO of Peebles Corporation, said his company seeks to grow when there is limited supply in the market and to buy when it sees exceptional value.
“And what we’re seeing here in commercial office space is essentially a once-in-a-generation… buying opportunity.” he told CNBC on Friday. “Nothing like this has happened since the early 1990s.”
That’s when the banking crisis shut down hundreds of lenders, allowing Peebles to purchase some buildings for as little as 20 cents on the dollar, he added, as properties owned by failed savings and loans were liquidated.
In fact, Peebles Corp.’s acquisitions made in cities like Washington, D.C., during that time became the foundation that allowed the company to expand in other parts of the country, the CEO said.
In today’s commercial real estate market, Peebles estimates that the value of commercial office buildings in San Francisco and Washington, D.C., has declined by 60 to 70 percent, and in Los Angeles by 70 percent or more.
But Peebles sees a looming rebound that developers can take advantage of, if they have the courage to do so.
“These are global cities that will come back at some point,” he said. “So you need to have the desire to buy, understand how to stabilize the assets based on current earnings potential, and then wait.”
Of course, he expects the market to adjust to the new hybrid work environment as the supply of commercial office space dwindles as many buildings are “remodeled, relocated or demolished.”
This echoes the words of other observers. Fred Cordova, CEO of real estate consulting firm Corion Enterprises, said some properties will bounce back while others may or may not hang on.
“And then there are the rest that are essentially worthless—class D,” he said. Luck in February. “They just need to be torn down. This is probably at least 30% of all offices in the country.”
Like Peebles, other commercial real estate players also see opportunity. For example, Miami mortgage lender KDM Financial earlier this year launched a $350 million fund, 20% of which will be allocated to non-residential commercial properties.
“I think I’m a little against it because I continue to have faith in the office,” KDM Financial CEO Holly McDonald-Court told the publication. Luck Earlier this year. “Right now we are going through a crisis… But I don’t think that [in the] in the long term, offices will disappear forever.”