The time to invest in office is now!

We've always heard that the ideal time to make acquisitions was when there's blood on the streets.

Bruce Flatt, Sam Zell and other legendary billionaire investors who have a history of buying distressed assets at bargain prices are loading up on office buildings. The opportunity is even greater in real estate sectors that are hated by the mainstream media.

There appear to be three main reasons:

#1 - People Are Coming Back to Offices:

Offices remain essential even in a digitized world.

Companies need offices for a number of reasons, which include collaboration, supervision, delegation, education, talent acquisition, and retention. In the future, we expect offices to only become more important as psychological effects of the pandemic potentially lead workers to seek out companies with more spacious and modern layouts.

They are all coming back to the office. It is just inevitable, but people have to do it in phases. They first thought they couldn't come back. Then they thought they could partly work from home. Eventually, they will all be back in the office. We are seeing it everywhere in the world. We are also seeing it in cities that are reopening, but it is just happening slower in certain places.

So while work-from-home may supplement offices, it won't replace offices in the vast majority of cases.

#2 - Lack of New Supply:

Real estate is cyclical. At times, there's too much supply and too little demand, and at other times, it is the opposite.

Today, the office sector is going through a down cycle, but down cycles never last forever. It all comes down to supply and demand, and while demand has been temporarily disrupted by the pandemic, so has the supply.

The one thing people have forgotten about when they think about office space is that normally the GDP of the world grows and you need more space to house people. And what happens when there is a slowdown is that no one builds new buildings. Now there really hasn't been anything significant launched globally for the last 18 months. Over time, you will see demand come back and the amount of supply diminish and a new cycle starts over again. Our view is that this is very positive longer term and we are continuing to invest.

#3 - Valuation in a Low Rate World

In the end, it comes down to the price you pay and the value you get. You want to buy great assets when there's blood on the street. Today, office buildings are avoided by most investors even as interest rates have dropped to zero and yield spreads are historically high.

The real thing here is that interest rates have gone to zero and it does not look like they are going up in a substantial way for a long period of time. When it all clears out, people are going to realize that these are some of the great investments to own.

You start seeing cap rates come down because people understand that offices will be full again. If you aren't in the business, it may be hard to understand, but that is really what's happening at the ground level. These are the ultimate contrarian investments because the market is pessimistic on both: Offices and big cities. But that's precisely what you should buy ...