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Addressing Headlines: Distress in Commercial Real Estate

Explore the contrasting distress in the office vs. multifamily markets.


Joseph Penner, CEO of HSR, and Paul Perkins, the company's CIO, address concerns raised by recent negative headlines about commercial real estate. They emphasize that these headlines do not reflect the entire sector, as each asset class faces distinct challenges, particularly noting differences between the office and multifamily markets.

Perkins noted that the office market is struggling due to rising interest rates and the persistent shift toward the work-from-home culture, which has led to prolonged vacancies and downward pressure on rental prices. In contrast, the multifamily sector, HSR’s primary focus, continues to demonstrate strong fundamentals. Despite rising expenses, multifamily properties in HSR’s target areas have maintained high occupancy rates, around 95%, signaling healthy performance and manageable operational conditions.

Penner points out that the distress observed in the multifamily sector is often linked to difficulties in restructuring their capital structures rather than operational issues seen in the office market. Perkins further elaborates on economic factors affecting real estate, particularly the recent rapid increase in interest rates, which has led to lower-than-expected property valuations for projects initiated during 2020 and 2021, despite strong leasing activity. This valuation challenge is primarily due to a significant devaluation of properties' Net Operating Income.

View the full interview with CIO Paul Perkins here.

Important Disclaimer:

The summaries, descriptions, and content in these videos are for informational purposes only and do not constitute tax, legal, or investment advice. The views expressed are those of the speakers and do not necessarily reflect the official policy or position of HSR or its affiliates. Investing in real estate involves risks, including potential loss of principal. HSR does not guarantee the accuracy or completeness of the information provided in the summaries or videos. Consult with qualified tax advisors, legal counsel, and financial planners before making any investment decisions.

Furthermore, these videos and their written summaries do not constitute an offer to sell or a solicitation of an offer to buy any securities or investment products. Any such offer will be made only by means of official offering documents and in accordance with applicable laws.

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