Office properties selling significantly below liquidation value. Am I missing something in regards to future prospects?
Update: Thanks for all the thorough answers. I'm glad I brought this here before pulling the trigger. I plan to run the numbers more to see if I can get a more firm grasp of true value. 

Recently, I started doing deep dives into the balance sheets of various companies. In particular, I've found some office REITs with market caps significantly below liquidation value. Some are holding land/buildings for 10-20+ years, at cost and deprecated on their balance sheets in attractive markets. Here's an example. ([https://www.reddit.com/r/stocks/comments/pi0f0y/commercial\_real\_estate\_as\_an\_asset\_play\_fsp\_is\_a/](https://www.reddit.com/r/stocks/comments/pi0f0y/commercial_real_estate_as_an_asset_play_fsp_is_a/) )

Assuming the company I wrote up (FSP), can sell off their assets gradually, I should make money. And if they are able to complete a turnaround I should also profit, if I buy at current levels.  However, commercial real estate is not my expertise, so I want to make sure I'm not missing something big. What do you all think of the prospects of office real estate going forward? Are there any markets where this type of play could be less risky?
[{"id": "hbp6y6y", "text": "Those prices accurately reflect the value. Liquidation value is defined by you by what criteria? Commercial real estate must be refinanced regularly, and if low vacancy makes the property operate at a loss, it can\u2019t be refinanced, resulting in a short sale. A gradual sell-off of properties may very well not be possible due to mortgages coming due. You would need very detailed info on lease terms for any property to find a potential deal, which you won\u2019t get. Private equity has lots of money they\u2019d like to invest, but it\u2019s almost impossible to find good CRE to buy and these are not held in REITs. \n\nAt this point, most REIT share purchases are purely speculative. Only invest if you can lose it all.", "replies": [], "depth": 1}, {"id": "hbp7sjx", "text": "I wouldn\u2019t look at at the balance sheet value for the RE as it doesn\u2019t matter today. I\u2019d try to get a FMV estimate for each asset they own (look at the NOI and cap it or estimate land value). You need to compare with TEV which includes debt not market cap alone.", "replies": [{"id": "hbpeawb", "text": "Thanks for the advice!  I'll run the numbers on the NOI when I get the chance. Is there a resource where I can research land value estimates?", "replies": [{"id": "hbpeho4", "text": "Look for sale comps in the area. If you want to really dive in, call a land broker in the area.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hbpavil", "text": "REITs are highly leveraged so as occupancy drops their cash flow can quickly go negative. The REIT could give the keys to several buildings back to the bank rather than pay the mortgage on negative cash flow properties. That would lose 100% of book value on the properties that default on a mortgage.\n Also value is typically a function of occupancy so a low occupancy portfolio could easily be less than book value. In today's environment of possible permanent work from home, there is expectations that office demand could be low for years into the future that is further depressing office values. \n\nUpside story would be Covid is nearly wiped out and everyone is required to go back to the office.\n\n With the current state of Covid outbreak among vaccinated people, I'm doubtful Covid will be controlled soon. Plus long term is a big cost saving by having people work from home with little to no office space to pay for rent.\n\nEssentially it is a risky bet on how many people and how quickly they return to the office and getting Covid under control. \n\nRegionally it depends on vacancy and growth. The REIT is positioned in good growth markets. Another angle would be to invest in hotel REITs. Hotels are recovering with tourism, but still there is a lack of convention business and businesses travel to drive revenue higher.", "replies": [{"id": "hbpesbk", "text": "Thanks for the thorough response. You're definitely giving me a lot to think about. I'll probably hold off on this investment for now until I run some more numbers", "replies": [], "depth": 2}], "depth": 1}, {"id": "hbpbqmn", "text": "Wait what are you trying to do again?", "replies": [], "depth": 1}, {"id": "hbqe136", "text": "Office broker here. \n\nRegional exposure will be a large risk factor. REITs with high exposure in the Bay Area or other coastal markets may see higher risk over the next several years. Part of this is due to the amount of sublease space on the market. In SF, Manhattan, and LA, the leases are typically structured on a longer term in order to help justify higher tenant improvement costs. The long term leases are now being advertised on the market for sublease with an average discount of 25% per the Colliers researcher I followed. This creates additional competition for direct space. The impact of the sublease space is that in  decision between signing a new lease at full market price and a fully furnished office at 25% discount the tenant should take the sublease. This will cause owners with occupancies issues to lower rates or offer other concessions to compete. \n\nThe other major risk factor is WFH or remote work which allows people to use satellite offices or their homes from other locations in the country. While I expect there to be a drop in the average space of a lease in the neighborhood of 25% - removing large training or conference rooms or simply 100% remote work the tenants I am working with are planning on offering the option for employees to come to the office. I think that over the long term people that show up to the office regularly will get promotions and raises more frequently.  \n\nIn my market, I am not seeing a collapse of the office. Prices have remained flat. Absorption was certainly low over 2020 and 2021, but the momentum is now at a stable and steady pace.  As evidence of this, there are several large spec offices underway and they are all performing well. There is also only limited sublease space available and much of it is in what are considered large blocks of space so it is not impacting the smaller sub 5000 SF users as much. One of the theories why the market is doing well now is that it was hit so hard during the Great Recession that it had no chance to overbuild thus creating enough lag to allow the market to be relatively stable at least in comparison to other markets.", "replies": [{"id": "hbqhkdb", "text": "Thanks for this answer. This makes a lot of sense. I noticed this regional discrepancy in terms of valuations for office reits I was exploring. With all the people leaving CA and NY and moving to large midwestern  and southern cities, I can see those office spaces performing better than the CA and NY markets.\n\nWFH is my primary concern when investing in office space. Once the career disadvantages of working remotely become apparent and people start voluntarily going in-person, I wonder how long it'd take for companies to start leasing more office space again.", "replies": [{"id": "hbqnosv", "text": "They may start leasing more here after this next round of covid. That being said they may be focusing on subleases. In the tertiary markets there may be a big swing up in the short term - Nashville for instance - but it the thesis becomes do you focus on potentially scooping up well located assets in major markets or try and compete for the limited supply of the space in the smaller markets. The supply side is going to be difficult to change because of labor and materials for the foreseeable future.", "replies": [], "depth": 3}, {"id": "hc9p3gv", "text": "The data on promotions for remote vs in -person is all based on pre-pandemic companies where remote workers were a small fraction of the total. In truly flexible companies like mine, it is 80-90+% remote, including senior leadership. Our offices have been open since June in Manhattan and out of 450 employees, the average daily office attendance is under 10 individuals. The only people that go in are those who are extroverts/live in a tiny apartment close to the office/need to meet a client or use a conference room/have another reason to be downtown (date/dinner with friends/shopping). There will never be a critical mass established on a regular basis, so even the extroverts are starting feeling lonely when coming in.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hcl9f9j", "text": "The location here is everything", "replies": [], "depth": 1}, {"id": "hdahtbv", "text": "Some of these properties they own, based solely on me not knowing what city they are in, are suburban office and likely older.  A 8% yield in the stock for a company with leverage doesn't jump out as a great deal for office.  Also, not sure if they announced they're liquidating, so idk why you assumed that, but you need to subtract out transaction fees and taxes if they are.  A better bet on an exit would be a takeover, but even then, unsure on the premium you're going to get, there's not a ton of people clamoring for suburban office.", "replies": [], "depth": 1}]