Transwestern: It's Time to Rethink the Best Use of CRE

According to Perry Degulis, who recently joined Transwestern as the company's new Executive Managing Director of Southern California, the first step on that road is to recognize that the perfect storm of challenges confronting CRE requires everyone to think differently about the "best use" of CRE assets.

"Uncertainty always brings opportunity, and there's a lot of uncertainty in the market," Degulis told GlobeSt. "We have an unprecedented opportunity to reshape the real estate landscape of Southern California."

"The perfect storm of inflationary conditions, supply chain concerns, a potentially cooling economy, the continued discussion—and lack of agreement on—return to office, the explosion of healthcare and life sciences product, and the need for more housing is forcing all of us to rethink the best use of our real estate," she said.

For the struggling office sector, still hovering well below 50% occupancy in most markets, this means finding new ways of engaging the people who occupy offices.

"One thing that has become clear is that giving people a reason to engage is the best way to get them back," Degulis said.

"As a society, we got very good at navigating the world through our devices. We're now at a place where people don't have to leave their homes and are used to the flexibility the pandemic gave to most of the workforce. Those are hard social habits to break, and owners and tenants alike are grappling with the issue," she said.

"In some cases, this may lead landlords to refresh amenities in key assets. Others may want to fully infuse hospitality elements across their portfolio. And then there are cases where the best use of a property might be something else entirely," Degulis told GlobeSt.

"Never has there been more emphasis on thinking outside the box," she said.

Adaptive reuse—which has surged in the emerging post-pandemic landscape—is taking redevelopment of properties in new directions, she said, noting that a majority of conversions in SoCal are not office-to-apartment renovations: 30% have converted to industrial, 16% to life science use and 6% to studio space for film production.

Transwestern's full-service CRE platform, which includes development, capital, brokerage and property management, currently manages 18.5M SF in SoCal, last year completing more than $115M in transactions, primarily in the office, industrial and multifamily sectors.

Degulis, who spent 16 years with CBRE—most recently as the director the brokerage's Greater LA unit—before joining Transwestern, is prioritizing the expansion of the company's life science and healthcare portfolios in SoCal.

In several recent developments, including TMC3, a 37-acre biomedical research hub in Houston, and the BioCube in San Jose, the company has leveraged its integrated resources to create life science "ecosystems," she said, indicating the strategy will be deployed in SoCal.

Regarding multifamily, Degulis told us she believes there's still room for rent growth in SoCal.

"Yes, I expect rent growth to continue," she said. "Despite reports of people leaving the state, there's still a steady influx of talent wanting to live and work in California."

Degulis believes multifamily investment in SoCal will continue to be brisk, although she noted that investors who don't have deep pockets may be keeping their powder dry in the face of headwinds including the increasing cost of debt and a growing push for rent control measures.

"We've seen smaller investors reduce their investment appetite, while larger, more sophisticated institutions understand the opportunity and have the resources to get deals done," she said.