Why some commercial property types are recovering faster than others

The useful part

Not every corner of the commercial property market is moving at the same pace. Two buildings on the same block can end up on opposite sides of it, depending on how their owners have chosen to respond. One veteran broker said the properties finding success tend to share an owner willing to rethink what the building is for in the first place.

How it works

• The successful people now in retail know that it's an ever-evolving market." Muller said that same willingness to rethink a property has shown up before in retail assets that could no longer compete as...
• "You have these big 20,000-square-foot floor plates without any core, without any lighting, and there's too much work that has to be done to them.
• "That kind of ends up being a mixed-use project." Regionally, Muller said the divide between markets has been less about size and more about how much new supply each has had to absorb.
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• Michael Muller (pictured top), senior managing director at Eastern Union, has spent 25 years in the commercial mortgage business and said that pattern shows up in investors willing to reposition an older...

What to take from it

"Many office buildings don't have the ability to be converted because they don't have a core," he said. "Experienced owners of retail are continuing to buy at these caps because they have built in enough juice that if my tenant is going to give me notice in a year or two, or my tenant's business plan changes, there's enough built in. You have to be like a real developer," Muller told Mortgage Professional America.

Example or evidence

• Medical tenants don't really leave." He said the office buildings finding a second life through residential conversion tend to share a specific physical trait.
• I see investors cherry-picking specific buildings that have the ability to be converted." Muller pointed to a recent deal as an example of what that repositioning can look like.
• "We were working recently on a three-building office park that had significant vacancy, where the sponsor was coming in, consolidating, moving all the offices to one building and taking the other two and...
• People are buying shopping centers with significant national tenants in them for 8.5, 9 caps, and they're getting financed.

Details worth keeping

"We're seeing a lot more retail acquisitions. That market seems to have stabilized and reset properly." He said the buyers succeeding in retail today are pricing in a cushion to cover any future disruptions to the market. "There's enough juice in there," Muller said.

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