2A — March 2024 — M id A tlantic Real Estate Journal
www.marej.com
M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher, Conference Producer ..............Linda Christman VP, Conference Producer .............................Lea Christman Editor/Graphic Artist ......................................Karen Vachon Contributing Columnists............................... Todd C. Monahan, WCRE | CORFAC International Mid Atlantic R eal E state J ournal ~ Published Monthly Periodicals postage paid at Hingham, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal 117 HMS Halsted Dr., Hingham, MA 02043 USPS #22-358 | Vol. 36, Issue 3 Subscription rates: 1 year $99.00, 2 years $148.50, 3 years $247.50 & $4.00 single issue - plus postage REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Phone: 781-740-2900 www.marej.com
Todd C. Monahan
Precarious Office Market Poses Risks
oday’s office market poses a number of risks for tenants. Office land - lords today are frequently tight on cash and have limited abil - ity to pay for major tenant im- provements. Couple that with the high cost of construction and you have a recipe making it challenging for tenants to renovate or relocate when ma - jor improvements are required. In typical market condi - tions, landlords demand to see a tenant’s financial state - ments before underwriting the risk associated with the lease transaction. Now, however, we are in a market where it’s es - sential that the tenant under - stands the landlord’s financial condition: How healthy is the landlord’s capital stack? What is their loan to value (LTV), debt service coverage ratio (DSCR), and loan maturity date? Is a landlord’s debt at a set interest rate, or is it floating and subject to inter - est rate fluctuations? With a T
near-term loan maturity, are the loan extensions defined or achievable? Is the current lender willing to refinance, given many lenders are redlin - ing office building loans and trying to reduce exposure to the office market? Tenants committed to pro - viding offices for their employ - ees are retrofitting to create an environment conducive to how employees work today. Employers are increasingly fo - cused on a workplace strategy that encourages collaboration. Workplaces require numerous conference rooms, small hud - dle rooms, casual soft seating and plug and play space where today’s mobile workforce can drop in and collaborate with their teams. Employers are
getting away from providing dedicated offices, as increas - ingly employees do indepen - dent work tasks at home or out of the office. Renovating older traditional space is expensive and many landlords are tight on cash. Construction prices have not eased as material pricing and labor costs have not dropped, despite lower inflation rates. This has created a capital environment that’s very chal - lenging for employers to create the offices they desire. Tenants interested in re - locating are increasingly studying prospective land - lords’ financial health to ensure they have the capital to fund improvements and continued on page 18A
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