A new venture by MacKenzie Companies and InspiRE CRE is aiming to generate better outcomes for some distressed commercial real estate properties.
The two companies have established the Asset Adversity Group – a strategic alliance that combines InspiRE’s distressed asset and receivership experience with MacKenzie’s leasing, management, marketing, sales and other CRE services. The group will provide pre-receivership services, helping lenders and investors evaluate best options for addressing a property’s financial challenges. The group can act as a receiver and also provide a full spectrum of post-foreclosure real estate services in order to optimize the value of distressed CRE assets.
“We are learning the needs of these clients – their pressure points and timing needs,” said Owen Rouse, Senior Vice President of MacKenzie Commercial Real Estate Services. “We believe by creating this one-stop-shop of complete and integrated services that is rapidly deployable, we will be able to impact the client’s costs and improve speed to market in selling assets.”
That holistic approach could ease a variety of challenges with a distressed property.
“You may need to stabilize an asset with property management services and triage issues with the existing management,” Rouse said. “Some leasing may need to occur to make a property a little bit healthier before it’s sold. And if transaction services are needed, we can sell that building. We can also determine what is the best sales narrative for that asset.”
Given office vacancy rates, interest rates, construction costs and the current lending environment, some distressed properties may need to be reimagined during the sales process, he said. For example, certain underperforming suburban office buildings may be better marketed as land plays.
Although the Asset Adversity Group has not yet taken on its first client, the partnership is poised to address what could be a difficult period for the commercial real estate industry. About $1.5 trillion in commercial real estate mortgages nationwide are scheduled to reset before the end of 2025.
“The industry is now encountering stiff headwinds and is expected to enter a radically different environment, based on a confluence of factors, including the space reduction trend caused by hybrid and remote work, the dramatic rise of interest rates, steeper construction costs and the widely predicted tsunami of property refinancing that will occur at significantly higher rates,” said Brendan Gill, President and Chief Operating Officer at MacKenzie Ventures, LLC.
Property owners have seen the value of many office buildings decline in recent years and are contending with “wrestling matches over rental rates” as tenants seek to shrink their office footprint, locate in attractive and amenitized buildings, and secure impressive lease agreements in a softer market, Rouse said. “What we are seeing is the echo effects of pandemic-related decisions – especially around work-from-home and hybrid-work arrangements – are starting to be felt.”
Faced with those conditions, “many banks have retreated from general lending for office properties and even if you can get a loan, it is going to be more expensive and on terms that may not be acceptable,” Rouse said.
The slowdown in lending could also make it more difficult to process foreclosures or sales of distressed properties, he added. “The downstream consequence of the current lending environment is there is very little transaction data. Sellers face great uncertainty as to the true value of their properties because there aren’t transactions that they can use as benchmarks. The same is true for buyers. The same is true for appraisers who are caught in the vapor trail of the decisions made by lenders.”
The Asset Adversity Group expects it will mostly serve small to mid-size banks in the Mid-Atlantic and handle properties valued between $5 million and $50 million.