What are your general thoughts on the state of the stereotypical suburban office markets in the next 3-5 and 5-10 years (think Southfield, MI) ?
[{"id": "e3k8lsv", "text": "Class A suburban office will always be a good investment imo", "replies": [{"id": "e3kk8rd", "text": "lol", "replies": [{"id": "e3kk9lz", "text": "How much property u got fag", "replies": [{"id": "e3kkbfd", "text": "Plenty to know you are amusingly wrong. ", "replies": [{"id": "e3kkckp", "text": "No u", "replies": [{"id": "e3kkcpk", "text": "No you both", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "e3ku524", "text": "Well, it'll probably be tied to the economy. If we have a recession I'd expect occupancy to drop, so make sure you have enough DSCR or reserves to pay your mortgage.\nLong run, so long as people live in suburbs they'll need professional services. I also think that office demand will rise for people who don't feel like commuting to the city. ", "replies": [{"id": "e3yyidn", "text": "We're certainly seeing the bifurcation of demand, in high growth cities especially, with companies needing both a CBD presence and a suburban presence. CBD is cool and hip and helps bring in young talent. Suburban lets the back-office types and some middle managers work in a more easy going and easier to access environment.\n\nAustin, TX is a great example, with the Domain serving as sort of a second CBD / suburban-hub and companies like Google, Facebook, etc gobbling up space in both locations to serve more of their employees more specifically.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "e3kx2mr", "text": "Office always seemed weird to me. They have vacancy rates of like 20% and downtown the landlord will make more from the parking than leasing the space. I always see for lease signs on the b and c stuff out in the sticks. Who leases that space? ", "replies": [], "depth": 1}, {"id": "e3l7ays", "text": "Suburban office will never appreciate in value at the same pace of other CRE asset classes. Think about land costs. There\u2019s a lot of land in the suburbs and every insurance agent, dentist, and small biz that wants Suburban office will always have the option to build. If you can build suburban office at $130/sf or buy a 10 year old office that needs updates for $110/sf, might as well build. So there\u2019s very limited appreciation potential in suburban office. ", "replies": [], "depth": 1}, {"id": "e3yy9j8", "text": "Best in class asset in suburban office markets should continue to perform. They must have something \"sticky\" about them, however, in that they must be well located with no clear functional obsolescence.\n\nThese should be purchased with the expectation that they are cash flow plays - they are not IRR plays. You won't see an equity pop. Be extremely cautious about your capital basis, both your going in basis and your on-going capital costs to lease and maintain the asset.\n\nWe're in the long tail of this cycle and most fund managers I know, myself included, view a downturn as likely in the next 2-3 years. Be aware and underwrite accordingly. Leverage your asset accordingly and model a long term hold with 50% LTC and 5% debt with amortization (following the expiration of whatever debt you'd initially place on it). Interest rates will continue to rise and lending, while very loose right now, will tighten in a downturn. The low leverage is suggested because your asset may already by overvalued compared to what they'll see it as in a downturn. \n\nBasic thesis: buy well below replacement cost, underwrite enough capital to keep it well kept up ($1/sf capex reserve, and be aware of specific capital like elevators, wet seal, HVAC, FLS, etc), keep rental rate growth and inflation at 2.5 or 3% with no jumps in rental rate to justify your numbers, and be prepared to make this a long term hold in the case of a downturn.\n\nInstitutional demand for these assets is highly limited. Have an idea of who in the market would be interested in purchasing at your eventual dispo (not specifically, but buyer profile). Be aware that there are very few suburban assets that really matter in a suburban office market, and don't be the guy who buys something that \"works right now\" but will go vacant in a downturn. Buy the sticky building.", "replies": [], "depth": 1}, {"id": "e3yz4so", "text": "Thank you for your detailed response. Im an analyst with a quasi-institutional investment management firm in metro detroit. Generally we contribute 50+ % equity in a deal in addition to managing the asset. Pure economics aside though, where do you see suburban office heading against the trends of \u201cwork from home\u201d and (sorry if youre not familiar with Detroit) the trend of many companies relocating away from the suburbs back to the urban core. \n\nMy high level thoughts, without contributing too much brain power to it, is suburban office vacancy rates are going to grow higher and higher - not necessarily quickly, but consistently. ", "replies": [], "depth": 1}]