Colliers makes template for tackling office distress

Colliers is working to put together what could be a template for tackling the extreme headwinds in the office market, building up teams to focus on sales and dispositions, buyer advisory, and debt and structured finance for properties in the Western US.

A confluence of events, including a slow return to workplace occupancy and its impact on leasing and reduced liquidity in the lending markets, has meant that what were once solid business plans are no longer viable, says Sean Fulp, vice-chair and head of office capital markets for the Southwest.

“The global investment base is watching what the local investors are doing because they know the market better than anyone”

Sean Fulp, Colliers

As a result, the Toronto-based advisory has over the past year added and expanded teams, and reallocated professionals to markets that include San Francisco, Los Angeles, Denver and Salt Lake City as it works to handle what is expected to be substantial distress.

“We are a capital markets team closely tied to local market experts,” says Fulp. “We do not helicopter in and use local experts as needed, we are collaborating. This is important, especially when you look at the existing stock of offices and, in some cases, the physical obsolescence. In addition to the pandemic, technology has had an impact, as [have] changes in who is the workforce today as opposed to 20 years ago.” 

Fulp, who joined the firm’s Los Angeles office with his team from Newmark roughly nine months ago, has focused on the office sector for his entire career and has worked in markets including Sacramento, San Francisco and Los Angeles. 

The firm’s Los Angeles team has around 10 professionals and has been active in the market, which has seen several properties fall into default or receivership, or that were sold at steep discounts. Colliers is the providing leasing, advisory and management servicers to the receiver and lender for Los Angeles’ Gas Company Tower and EY Plaza, working to advise on next steps in a way that preserves, protects and improves value, Fulp says. 

“We feel like we are in an era in which if you invest in office right now, it is very speculative,” he says. “Institutional investors are not able to take speculative risk, and not understanding future demand, illiquidity from the banking crisis, and rising interest makes it very difficult to transact.” 

Most of the potential buyers in the market have been private investors, including local family offices.

“These are investors who are already in or have ties to the market and, as we enter a point where pricing is at or near bottom, the global investment base is watching what the local investors are doing because they know the market better than anyone,” Fulp said.

While it is a truth universally accepted that the commercial real estate capital markets are frozen, there are trades happening. Often, sellers are providing financing that resembles bridge financing in 2018 or 2019, Fulp says.

“The lender and investor pool for high-rise office buildings has its own investor and lender base. The tenant pool is very similar as well across geographies. Los Angeles is becoming a template for Colliers, and we believe the services we bring are very transferable to other markets.”