The U.S. office market has struggled to find favor among investors as occupancy shrank and valuations plummeted coming out of the pandemic.
But now valuations are getting to a place where investors and lenders are interested in office again — if tariff uncertainty doesn’t derail things.
“You may not believe this, but I’ve been underwriting a lot of office,” The Graham Group Managing Partner Jeffrey Graham said during Bisnow’s Atlanta State of the Market event on May 13. “So I guess at some point there is a price point that people believe is low enough that they can make it make sense.”
Bisnow/Jarred Schenke
Holland & Knight’s Nellie Sullivan, Patterson Real Estate Advisory Group’s Todd Flaman, Jamestown’s Matt Bronfman, The Graham Group’s Jeffrey Graham, Hines’ Vikram Mehra and The Ardent Cos.’ Scott Werbel.
While it remains difficult to raise money to buy office buildings, Hines has been investing with partners on both the development and acquisition side, Senior Managing Director Vikram Mehra told the audience at the Hyatt Regency Atlanta. The push to bring workers back to the office has taken hold in major cities like New York and is bound to trickle down to secondary markets such as Atlanta, Mehra said.
Hines and Rialto Capital closed a $2.5B office-focused credit fund in November to help refinance and recapitalize office assets.
“We’re big believers in it, and we believe trophy office and well-placed office in mixed-use will continue to thrive,” he said. “So we are investing a lot of time, both in development and acquisition.”
Fifteen office properties traded hands in the first quarter in Atlanta, according to Partners Real Estate, including RG Real Estate’s purchase of TownPark Commons for $42M and the $14.2M sale of the 186K SF Glenridge Point to a joint venture between Alan Joel Partners, The Meltzer Group and Northside Hospital.
While office investment sales remain muted in Atlanta, Lee & Associates noted that lower valuations are attracting opportunistic investors, such as Cousins Properties, which spent $1B on properties in the U.S. over the past year, and the Atlanta Braves Development Co., which bought the six-building office campus next to The Battery Atlanta for $93M.
Sales activity across the U.S. has picked up so far this year. Buyers poured $185B into office purchases nationally during the first quarter, a 34% increase from the same period last year, according to JLL.
Patterson Real Estate Advisory Group Managing Partner Todd Flaman said his firm is seeing an increased appetite among investors for office as well. And Scott Werbel, managing director of The Ardent Cos., said his firm has seen an increase in lending to office owners looking to buy back properties from their existing lenders.
“We have been helping existing sponsors, borrowers buy their debt back or recapitalize the deal to reset the basis,” Werbel said. “We do like the asset class and do believe that it has bottomed out and is improving, especially in New York.”
Bisnow/Jarred Schenke
Corgan’s Joyce Fownes, SJC Ventures’ Matt Grose, Robles Partners’ Ben Hautt and QXO’s Michael Mazurk.
But President Donald Trump’s trade war and his administration’s use of tariffs are complicating real estate finance, panelists said. An across-the-board 10% tariff on imports to the U.S. and 30% baseline tariffs on China are pushing capital to look outside the U.S. for real estate investments, said Ben Hautt, managing partner of Atlanta firm Robles Partners.
Hautt said he was negotiating with European investors on a retail development when the tariffs hit and they pulled out for nine months.
He said that as foreign capital steps back, domestic sources can demand higher yields, which strains development projects.
“The thing that’s not being talked about is the pullback of the capital, and specifically foreign capital,” he said. “That’s not an isolated incident that’s happening. That’s the general sentiment of Europe and China, who are not as excited to invest in … the U.S. right now. When you have capital slowing, that does start to affect fundamentals, and specifically, that affects our developments.”
While the perception of tariffs may be worse than the reality, they are spooking capital sources, especially for projects like multifamily that rely on more imported materials, Flaman said.
“I would say over the past 90 days, on some of the equity raises we’re involved in, we’ve seen maybe 10 to 12 groups hit the pause button or pull out of a process due to tariffs, and a number of those are foreign investors as well,” Flaman said.
“I think from what we’ve been hearing from some investors, it’s more if the tariffs are put in place, does that push maybe the U.S. economy into a recession? And it’s now maybe just not the best time to invest in U.S. real estate heading into a recession.”