🗞️ News&Moves 🏠

Office buildings full of tenants—but still can’t refi

180 Water Street in New York City, 98% occupied, still slid into special servicing after failing to refinance.

It’s not alone—20 Broad, the Cunard Building, even 1407 Broadway, all in New York City, followed suit.

The culprit?

Skyrocketing interest rates and falling valuations.

Lenders now offer lower LTV at higher rates, leaving owners with two choices: inject fresh equity or surrender the keys.

In this market, strong occupancy doesn’t guarantee survival—the financing environment has become the real test.

(Source: Commercial Observer)

Downtown San Francisco is half-empty—but packed with potential.

Picture this: a city booming in every way except for its heart—downtown.

Office towers sit half-empty, small businesses shuttered, and transit is a mess.

But here’s the twist: San Francisco’s real estate investors and the city agree—it's fixable.

Forget mandates.

Think carrots: spec suites, killer amenities, and vibrant neighborhoods.

But without safe streets, affordable housing, and reliable transit, the comeback won’t happen.

The city’s offering tax breaks, betting on AI, and planning new construction.

Will it be enough?

Give it four years, they say—we might just get there.

(Source: The Real Deal For You)

🚨 The Fed Pulse 🚨

Rate cut hopes for early summer?

Fading fast.

Even the Fed's most dovish member, Governor Christopher Waller, is showing patience.

He echoes Chair Powell's wait-and-see approach.

After July, tariffs will tighten.

The Fed won’t clearly see inflation or growth until later in the year.

That leaves May and June meetings likely off the table for cuts.

Cleveland Fed’s Beth Hammack said May is “too soon.”

She hinted at a small chance for June or July if “clear and convincing” data appears.

But with only two jobs reports before June, that bar remains high.

The market’s still holding out hope, but the Fed choir is singing in unison: not yet.

More likely, rate relief comes in September—or later.

Investors must navigate a data-driven Fed for now.

The Fed is content to stay steady while the tariff dust settles.

(Source: MarketWatch)

If you’ve been here a while, you know I hold Sam Zell in the highest regard.

The guy wasn’t just in commercial real estate—he rewrote the rules of the game.

And that quote?

It nails the heart of the value-add.

📌 Buy below value.

📌 Fix the problem.

📌 Bring it to market value.

That’s it.

This approach is very different from core investing, where you’re betting that future growth will drive value.

With core, you buy a stable property at full price.

You trust that the future will bring benefits, like higher rents, a thriving neighborhood, or better economic conditions.

But that upside?

It’s not here yet.

It’s a forecast, not a fact.

Value-add, on the other hand, doesn’t rely on hope.

The value gap is there today—you just have to close it.

Here’s the picture:

🔸 Building A sold for $10M. Fully leased. Market rents.

🔸 Building B, down the block, is a little rough around the edges. It’s going for $5M.

But let's say you know that with $2.5M in renovations, Building B can be in the same or better condition, appeal, and level as Building A.

No waiting on rent growth or neighborhood changes.

You’re creating value with your hands.

Now, I’m a value-add investor. But I’ve got room for core "steady eddy" deals too.

I took this from Alan Schnur (I wrote about it in this article); it’s about keeping two buckets of assets.

But back to value-add.

A friend of mine and a reader, Paul, sent in a great question that gets right to the heart of the matter:

Paul, I love this question because it’s exactly how I think about these projects.

There’s no industry standard for this breakdown, but here’s my take on it:

Easy Value-Add

📌 Timeline: 6-12 months.

📌 CapEx: 5%-20% of the building’s value.

📌 Financing: Standard 5-year bank debt.

📌 Scope: Light renovations, minimal permitting.

This is the “low-hanging fruit” play.

Typically, the building is fully leased but underperforming—usually because rents haven’t been adjusted in years.

Very often owner is absentee and no one is paying close attention to the property.

The building is in good shape, but it could use some upgrades.

Maybe power washing and fresh coat of paint would make a difference.

It could also be worth patching the roof and upgrading old bulbs to LEDs.

Lastly, consider re-striping the parking lot for a cleaner look.

I often see tenants with short-term or month-to-month leases in these deals.

This gives you the flexibility to adjust rents or negotiate 3-5 year NNN leases.

You can do this in exchange for minor improvements.

Sometimes, just cleaning up the place is enough to get rents to market.

Value boost: 25%-50%+.

Risk level: Low stress, fast turnaround. Honestly feels a little like flipping houses.

Here’s an example we recently did in Fort Myers, FL:

👉 Fort Myers Case Study

Medium Value-Add

📌 Timeline: 12-24 months.

📌 CapEx: 20%-50% of building value.

📌 Financing: Bridge or private lenders, short-term (12-24 months).

📌 Scope: More improvements than easy value add, engineering plans, permitting, re-tenanting.

This is where things get heavier.

These buildings need more than just lipstick—they might require mechanical system upgrades, maybe a new roof, maybe even new asphalt.

You’re also dealing with higher vacancies (often 50% or more), so re-tenanting becomes part of the lift.

Standard bank financing generally won’t cut it here.

You’re looking at bridge lenders or private money.

Value boost: 50%-100%+.

Risk level: More moving parts. Construction delays, budget overruns, and short-term debt.

We did one like this in Tennessee that required serious effort beyond just the physical improvements:

👉 Tennessee Case Study

Hard Value-Add

(AKA Heavy Lift)

📌 Timeline: 2-5 years.

📌 CapEx: 100%+ of property value.

📌 Financing: Creative capital stack—seller financing, bridge debt, higher % of equity.

These projects are full-scale redevelopments.

The property might be vacant or near-vacant.

You’re starting from scratch—zoning changes, variances, full demo to the bones, new mechanical systems, engineering, permits—the whole deal.

Forget about traditional bank debt.

You’re stitching together capital stack from multiple sources and taking on a lot more risk.

The biggest threat?

Time. The longer these projects take, the more exposed you are.

What you think is a two-year project can easily stretch into four or five.

Value boost: Massive, 100% +.

Risk level: Highest. These projects will test your patience, your skills, and your grit.

But here’s the intangible payoff: You come out of these projects much more capable.

You perceive risk with greater clarity.

Where you used to see three moves ahead, now you can see five.

And that skill?

It's yours forever.

No market shift can take that from you.

You earned it.

Here is one heavy lifts we did we did in Milwaukee WI.

👉 Milwaukee Case Study

Final Thoughts:

At this stage in my real estate career, I aim for a 50/50 mix of core and value-add investments.

Within value-add itself, I’m leaning 80% easy, 20% hard.

The easy ones give you quick wins.

The hard ones?

They keep challenging me to be better at what I do.

That’s it for today, folks.

And hey, I’d love to hear from you:

What’s your biggest challenge right now in commercial real estate?

Reply back—I read every single email (yes, really).

And if I have a solution, I’ll reply.

Or I’ll queue it up for a future newsletter.

This is me and you talking—not AI.

Hit reply!:)

See you next Sunday.

Be Well,

Saul