After years of soaring demand and skyrocketing prices, multifamily real estate finds itself at a crossroads—a stark reversal from its pandemic heyday, when investors flocked to the asset class seemingly immune to risk. Office properties, by contrast, endured public scorn as remote work drained value from traditional workspaces and left owners battling steep losses. According to Marcel Arsenault, CEO of Real Capital Solutions, the two sectors have now traded places in the eyes of cautious investors, with office emerging as the unexpected opportunity and multifamily struggling to adapt.
Speaking with GlobeSt.com, Arsenault said that distress runs deep in the office market. “We believe there are about $321 billion in distressed office debt over the next few years, with roughly half likely to be written off,” he noted. On average, office values are down by 21.5% from their peak, and Arsenault predicts that they will go down another 15% or 16%, bringing the total decline passed 36%. Cap rates, which once hovered around 5% or 6%, now edge closer to 9%—and in especially turbulent deals, they go even higher.
Research from Yardi Matrix adds further context, reporting that nearly half of all office properties changing hands today do so at a discount. Arsenault says his team is capitalizing on those conditions. “The deals we’re buying are at a 12 cap on average,” he explained, targeting Class A or A-minus buildings that are typically about 70% leased. “We’re buying distressed deals from owners who can’t pay the tenant improvement or leasing commission. The cap rates are up, but the lenders don’t like office.” He even describes purchasing assets from one of the country’s largest funds for “less than half of what they paid.” As many investment funds reach the end of their planned cycles and face pressure to return money to investors, taking a loss sometimes becomes unavoidable.
Real Capital has issued letters of intent and contracts on about $1 billion worth of office properties, although fierce competition means only a fraction of those deals will stick. “We have an appetite for another billion,” Arsenault told GlobeSt.com.
However, multifamily investments carry their own risks at present. Arsenault warns that the sector’s wave of new construction has led to an oversupply of apartments—a problem amplified by abundant financing and lender enthusiasm.
“We’ve been worried the last couple of years about the big bulk of new construction, the oversupply of apartments,” he said. “There’s a lot of money and lenders propping up apartments. We’ve been warning people off apartments in the last three years.”
Arsenault expects the market to face another 15% to 20% correction, suggesting that real buying opportunities will emerge next year and beyond.
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