Discover the most lucrative opportunity in commercial real estate today.
Office Building Investments at a Discount
Currently, office buildings are being sold at the largest discount in decades, and this trend is expected to continue for at least the next three years. While some may view this as a challenge, we see it as an opportunity for creative thinking and exploring innovative ways to repurpose existing spaces.
Factors influencing the CRE sector today:
- Interest rates are up. 40% of CRE mortgages must be refinanced by 2025
- Higher interest rates mean higher capitalization rates, meaning prices fall
- Possibility of recession bodes ill for rental rates and occupancy, less NOI
- Credit will be less available with uncertainty for banks and market
- Office workers are less likely to occupy desks 5 days a week, which threatens the traditional business model for landlords
Office worker occupancy is plateauing at ~50%. Take note if you’re a single-family home investor, going forward a significant segment of the population will pay a premium for larger homes with at least one home office and a second flex-space that could become a home office space.
Office tenant vacancy is at 13%, the highest since Costar started tracking this data. Meaning, more office tenants will be consolidating their space and moving up to Class A office space to offer the best space to entice workers to the office.
Class B and C office space will have the largest discounts and where we’ll focus our efforts.
Potential Asset Conversions
Our community brainstormed how to repurpose deeply discounted office building for an unprecedented opportunity.
As you explore repurposing office buildings, there are several options worth considering depending on zoning, location, and property.
These include:
- Apartments: Convert the office space into residential units to meet the growing demand for housing.
- Hotels: Repurpose the building into a hotel to cater to the tourism and hospitality industry.
- Self-Storage: Transform the space into a self-storage facility, providing a solution for individuals and businesses in need of extra storage.
- Retail: Explore the possibility of creating retail spaces to meet the needs of the surrounding community.
- Medical Practices: Convert the building into medical facilities, such as clinics or specialized practices, catering to the growing demand for healthcare services.
- Schools: Repurpose the space as storm shelters or playgrounds, addressing community needs while generating potential rental income.
Vertically Integrated or Complimentary Business Opportunities
In addition to asset conversions, there are opportunities for vertically integrated or complimentary businesses within the repurposed office building. Consider the following possibilities:
- Senior Living: Establish memory care facilities, active adult communities, or recreation centers to cater to the needs of seniors in the area. Collaborate with medical professionals to offer on-site healthcare services.
- Rehab or Cancer Treatment Center: Create a space similar to a Ronald McDonald House, providing medical treatment, accommodation for guest families, and recreational activities for patients.
- Entertainment Complex: Develop an entertainment hub with attractions such as virtual reality sports arenas, go-karts, bowling alleys, and arcades. Partner with sports camps to further enhance the experience.
- Conference or Training Center: Similar to Strategic Coach, establish a full-time conference center that offers a wide range of services for business events and training sessions.
- Eat, Work, Play, Live: Create a vibrant environment by integrating restaurants, offices, fitness centers, recreational facilities, and extended stay hospitality options.
Future Value and Exit Strategy
Investing in repurposed office buildings can be a 3-year value-add project or a long-term cash-flow play. While the initial purchase may come at a discount, we anticipate that the location will become increasingly valuable over the next five years. This strategic timing allows you to capitalize on the improved market conditions and sell the building for a potentially higher return on investment. You can get extra bonus points if you can buy within an Opportunity Zone, hold for ten years and then legally never pay taxes on the sale!
Results in Our Community
Several in our Financial Journey community have success in converting commercial real estate for a strong value add. One member 10X’d his net worth into a strong 8 figure number after just three projects. Our community is generous in sharing what they do and how they do it. You have the opportunity to become active and imitate what they’re doing or simply passively invest with them.
Next Steps
The current market conditions present a unique opportunity to invest in office buildings at a discount, opening doors for creative repurposing and the potential for substantial future returns. We leverage our expertise, network, and industry connections to maximize your investment success.
If you’d like to explore specific opportunities or strategies our members have access to, book a laser coach session with a wealth specialist here.