Taconic Development Advisors, the advisory arm of New York-based developer Taconic Partners, believes there will be a rising need over the near term for development and asset management strategy as lenders, borrowers and investors seek to deliver on business plans for properties under construction or reimagine strategies for existing assets.
The firm’s advisory business started approximately six years ago, responding to interest from its partners and investors that were seeking expertise to reposition properties, said Colleen Wenke, president and chief operating officer of Taconic Partners.
“[Our clients and partners] leaned into the services that we could help provide in terms of strategy, positioning oversight and construction, among other services,” Wenke said. “The services we offer are the range of services Taconic Partners has delivered successfully over the course of the past 25 years, and we are able to translate that work for clients.”
The past year has brought a new set of challenges for the commercial real estate environment as the market has grappled with higher interest rates, headwinds for the office sector and near-term debt maturities, with a January report from MSCI tracking a significant rise in distress in 2023. The data and analytics provider reported a balance of $85.8 billion of troubled loans at the end of 2023, an increase of $28.9 billion over the year, and is also is reporting another $234 billion of potential distress.
These stressors have meant that Taconic Development Advisors has seen a rise in its work, for example, with banks or other lenders that have taken over properties on which they originated loans but did not have in-house resources to manage, said Chris Balestra, president and chief investment officer.
“We are working with a lender now that is not an operator but is looking for some alignment from an equity investor who could help them to reimagine the property or continue the existing business plan,” Balestra said. “We are also working with an owner that is a capital partner and is replacing a joint venture partner. The owner is not an operator, and we can help them complete the business plan.”
Taconic Development Advisors is also starting to see more opportunities to work with banks seeking advisory services early on when looking at troubled loans, Balestra added.
“We think you will see more banks bringing in a party like us to advise them internally before they decide to take over or operate an asset,” Balestra said. “Banks are stretched pretty thin with some of the problem loans on their books.”
Often, the situations Taconic Development Advisors sees are with transitional assets.
“The only way for the new owner to realize a return on their investment or a recovery of some of their investment is to finish the business plan and put the property in a position to sell for the most they can when the time is right, likely a couple of years down the line. We are helping them to recover the profit on their investment,” Balestra said.
By sector, the firm sees the office sector as the most challenging. “If you look at the major food groups, office is by far the one where the most distress is happening now,” Balestra added.
But real estate, as always, is a case-by-case business and will continue to be, Wenke said.
“I know the market is talking a lot now about commercial office conversions, but there needs to be a thorough economic analysis of each property to determine a strategy and a way forward,” he added. “We look at each asset through a lens on a standalone basis to determine what its specific needs are.”