SAN FRANCISCO—A majority of US office buildings are eithervacant or only partially occupied due to COVID-19. But in themonths ahead, class-B and -C buildings face the biggestchallenges.

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This is because those buildings tend to be occupied by smallbusinesses that are less likely to recover from the economic impactof the health crisis. But at the same time, owners of thesebuildings also have an unprecedented opportunity, says Mark Hefner,CEO and shareholder of MGO Realty Advisors, which is advisingcompanies about how to quickly pivot during this challengingperiod.

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"Healthy owners who have the capital and vision to adjust cantransform their buildings into spaces that are most in demand rightnow, for example, warehouses for e-commerce companies," Hefnersays.

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Hefner recently shared additional insights into thetransformational shift already underway and what owners of B and Cbuildings should be thinking about right now.

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GlobeSt.com: How should B and C tenants take advantageof the major concessions in the market right now?

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Hefner: By using their occupancy and futurecash flow to landlords as a powerful lever, tenants can potentiallydrive rents lower and/or mandate tenant improvement and buildingsystem upgrades so the building becomes a competitivealternative.

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For owners, they can choose to invest and upgrade to compete;pivot and convert to an alternative use, e-commerce last mile asone relatively low-cost example; redevelop the site; lower rents toretain and attract tenants; or hand the keys back to the lender.Creative landlords may choose to attract or retain tenants byoffering them ownership or options to purchase with today's recordlow interest rates. Some companies that can forecast their realestate footprint at a location could benefit from ownership overleasing. A CPA could provide the relevant guidance on this butownership could lower and fix major occupancy costs to a greaterdegree than the costs of leasing for some companies and users ofreal estate.

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GlobeSt.com: How should these owners configure spacewhen intended use doesn't apply anymore?

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Hefner: I recommend they pay attention to themarket. What does the market truly need short and long term? Is ittraditional class-B or -C office space, upgraded butcost-competitive healthy office space, e-commerce last mile shellspace, community space, housing? The answer will vary submarket tosubmarket and building to building.

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GlobeSt.com: What is the best way to put together a moreflexible tenant mix to keep the building fullyoccupied?

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Hefner:  Rents, amenities and locationare the factors that usually drive the tenant mix. So, again,landlords need to talk to their existing tenants, understand thedrivers of their submarket and talk to brokers and tenants alike tounderstand why tenants make certain building selections. With thatdata and a checkbook, landlords can make better decisions aboutwhat product to deliver to the market.

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GlobeSt.com: What are some tips for installing healthyfiltration systems and social distancing practices?

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Hefner: An HVAC consultant and buildingengineer should be consulted for the best customized solution. Someof our clients are choosing to bring in portable HEPA airfiltration systems as an interim solution ahead of major buildingsystem upgrades. While I cannot attest to the health benefits ofsuch decisions and installations, these can instill more confidencein some employers and employees.

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.