Blog

In early June I had the opportunity to join Caleb Parker for a special episode of his podcast the Caleb Parker Show. We covered a wide range of topics, including the future of financing, valuations and the potential shift towards permanent capital in office real estate. We also chatted about my experience as a landlord, shifting from traditional office to Space-as-a-Service and the challenges with valuing and financing flex properties.

Very few industries offer investors 20x multiples on earnings. Software is able to achieve high multiples through high levels of earnings growth, while real estate has offered investors bond-like safety. Office investors are currently facing a double headwind–not only has the Risk Free Rate increased, but market sentiment has also moved against offices. In order to stay in the 20x club, we need to re-look at what levers are available to us.

Under international accounting standards, how an asset is used can affect its valuations—as long as that use isn't unique. With Space-as-a-Service growing in popularity, we're risking disaster the longer we take to include it within the definition of 'Highest & Best Use'.

If higher service levels don't increase office building values, then why are full service hotels worth more than their limited service competitors?

Stuck between a market that is demanding flexible leases and an ecosystem that is optimized for traditional, long-term leasing, landlords are facing a potential market squeeze that will cause a large loss in value.